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Filing Tax Return 2012

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Filing Tax Return 2012

Filing tax return 2012 Publication 596 - Main Content Table of Contents Chapter 1—Rules for EveryoneRule 1—Adjusted Gross Income (AGI) Limits Rule 2—You Must Have a Valid Social Security Number (SSN) Rule 3—Your Filing Status Cannot Be Married Filing Separately Rule 4—You Must Be a U. Filing tax return 2012 S. Filing tax return 2012 Citizen or Resident Alien All Year Rule 5—You Cannot File Form 2555 or Form 2555-EZ Rule 6—Your Investment Income Must Be $3,300 or Less Rule 7—You Must Have Earned Income Chapter 2—Rules If You Have a Qualifying ChildRule 8—Your Child Must Meet the Relationship, Age, Residency, and Joint Return Tests Rule 9—Your Qualifying Child Cannot Be Used by More Than One Person To Claim the EIC Rule 10—You Cannot Be a Qualifying Child of Another Taxpayer Chapter 3—Rules If You Do Not Have a Qualifying ChildRule 11—You Must Be at Least Age 25 but Under Age 65 Rule 12—You Cannot Be the Dependent of Another Person Rule 13—You Cannot Be a Qualifying Child of Another Taxpayer Rule 14—You Must Have Lived in the United States More Than Half of the Year Chapter 4—Figuring and Claiming the EICRule 15—Earned Income Limits IRS Will Figure the EIC for You How To Figure the EIC Yourself Schedule EIC Chapter 5—Disallowance of the EICForm 8862 Are You Prohibited From Claiming the EIC for a Period of Years? Chapter 6—Detailed ExamplesExample 1—Sharon Rose Example 2—Cynthia and Jerry Grey Chapter 1—Rules for Everyone This chapter discusses Rules 1 through 7. Filing tax return 2012 You must meet all seven rules to qualify for the earned income credit. Filing tax return 2012 If you do not meet all seven rules, you cannot get the credit and you do not need to read the rest of the publication. Filing tax return 2012 If you meet all seven rules in this chapter, then read either chapter 2 or chapter 3 (whichever applies) for more rules you must meet. Filing tax return 2012 Rule 1—Adjusted Gross Income (AGI) Limits Your adjusted gross income (AGI) must be less than: $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children, $43,038 ($48,378 for married filing jointly) if you have two qualifying children, $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. Filing tax return 2012 Adjusted gross income (AGI). Filing tax return 2012   AGI is the amount on line 4 of Form 1040EZ, line 22 of Form 1040A, or line 38 of Form 1040. Filing tax return 2012   If your AGI is equal to or more than the applicable limit listed above, you cannot claim the EIC. Filing tax return 2012 You do not need to read the rest of this publication. Filing tax return 2012 Example—AGI is more than limit. Filing tax return 2012 Your AGI is $38,550, you are single, and you have one qualifying child. Filing tax return 2012 You cannot claim the EIC because your AGI is not less than $37,870. Filing tax return 2012 However, if your filing status was married filing jointly, you might be able to claim the EIC because your AGI is less than $43,210. Filing tax return 2012 Community property. Filing tax return 2012   If you are married, but qualify to file as head of household under special rules for married taxpayers living apart (see Rule 3), and live in a state that has community property laws, your AGI includes that portion of both your and your spouse's wages that you are required to include in gross income. Filing tax return 2012 This is different from the community property rules that apply under Rule 7. Filing tax return 2012 Rule 2—You Must Have a Valid Social Security Number (SSN) To claim the EIC, you (and your spouse, if filing a joint return) must have a valid SSN issued by the Social Security Administration (SSA). Filing tax return 2012 Any qualifying child listed on Schedule EIC also must have a valid SSN. Filing tax return 2012 (See Rule 8 if you have a qualifying child. Filing tax return 2012 ) If your social security card (or your spouse's, if filing a joint return) says “Not valid for employment” and your SSN was issued so that you (or your spouse) could get a federally funded benefit, you cannot get the EIC. Filing tax return 2012 An example of a federally funded benefit is Medicaid. Filing tax return 2012 If you have a card with the legend “Not valid for employment” and your immigration status has changed so that you are now a U. Filing tax return 2012 S. Filing tax return 2012 citizen or permanent resident, ask the SSA for a new social security card without the legend. Filing tax return 2012 If you get the new card after you have already filed your return, you can file an amended return on Form 1040X, Amended U. Filing tax return 2012 S. Filing tax return 2012 Individual Income Tax Return, to claim the EIC. Filing tax return 2012 U. Filing tax return 2012 S. Filing tax return 2012 citizen. Filing tax return 2012   If you were a U. Filing tax return 2012 S. Filing tax return 2012 citizen when you received your SSN, you have a valid SSN. Filing tax return 2012 Valid for work only with INS authorization or DHS authorization. Filing tax return 2012   If your social security card reads “Valid for work only with INS authorization” or “Valid for work only with DHS authorization,” you have a valid SSN, but only if that authorization is still valid. Filing tax return 2012 SSN missing or incorrect. Filing tax return 2012   If an SSN for you or your spouse is missing from your tax return or is incorrect, you may not get the EIC. Filing tax return 2012 Other taxpayer identification number. Filing tax return 2012   You cannot get the EIC if, instead of an SSN, you (or your spouse, if filing a joint return) have an individual taxpayer identification number (ITIN). Filing tax return 2012 ITINs are issued by the Internal Revenue Service to noncitizens who cannot get an SSN. Filing tax return 2012 No SSN. Filing tax return 2012   If you do not have a valid SSN, put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). Filing tax return 2012 You cannot claim the EIC. Filing tax return 2012 Getting an SSN. Filing tax return 2012   If you (or your spouse, if filing a joint return) do not have an SSN, you can apply for one by filing Form SS-5 with the SSA. Filing tax return 2012 You can get Form SS-5 online at www. Filing tax return 2012 socialsecurity. Filing tax return 2012 gov, from your local SSA office, or by calling the SSA at 1-800-772-1213. Filing tax return 2012 Filing deadline approaching and still no SSN. Filing tax return 2012   If the filing deadline is approaching and you still do not have an SSN, you have two choices. Filing tax return 2012 Request an automatic 6-month extension of time to file your return. Filing tax return 2012 You can get this extension by filing Form 4868, Application for Automatic Extension of Time to File U. Filing tax return 2012 S. Filing tax return 2012 Individual Income Tax Return. Filing tax return 2012 For more information, see the instructions for Form 4868. Filing tax return 2012 File the return on time without claiming the EIC. Filing tax return 2012 After receiving the SSN, file an amended return, Form 1040X, claiming the EIC. Filing tax return 2012 Attach a filled-in Schedule EIC, Earned Income Credit, if you have a qualifying child. Filing tax return 2012 Rule 3—Your Filing Status Cannot Be “Married Filing Separately” If you are married, you usually must file a joint return to claim the EIC. Filing tax return 2012 Your filing status cannot be “Married filing separately. Filing tax return 2012 ” Spouse did not live with you. Filing tax return 2012   If you are married and your spouse did not live in your home at any time during the last 6 months of the year, you may be able to file as head of household, instead of married filing separately. Filing tax return 2012 In that case, you may be able to claim the EIC. Filing tax return 2012 For detailed information about filing as head of household, see Publication 501, Exemptions, Standard Deduction, and Filing Information. Filing tax return 2012 Rule 4—You Must Be a U. Filing tax return 2012 S. Filing tax return 2012 Citizen or Resident Alien All Year If you (or your spouse, if married) were a nonresident alien for any part of the year, you cannot claim the earned income credit unless your filing status is married filing jointly. Filing tax return 2012 You can use that filing status only if one spouse is a U. Filing tax return 2012 S. Filing tax return 2012 citizen or resident alien and you choose to treat the nonresident spouse as a U. Filing tax return 2012 S. Filing tax return 2012 resident. Filing tax return 2012 If you make this choice, you and your spouse are taxed on your worldwide income. Filing tax return 2012 If you need more information on making this choice, get Publication 519, U. Filing tax return 2012 S. Filing tax return 2012 Tax Guide for Aliens. Filing tax return 2012 If you (or your spouse, if married) were a nonresident alien for any part of the year and your filing status is not married filing jointly, enter “No” on the dotted line next to line 64a (Form 1040) or in the space to the left of line 38a (Form 1040A). Filing tax return 2012 Rule 5—You Cannot File Form 2555 or Form 2555-EZ You cannot claim the earned income credit if you file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion. Filing tax return 2012 You file these forms to exclude income earned in foreign countries from your gross income, or to deduct or exclude a foreign housing amount. Filing tax return 2012 U. Filing tax return 2012 S. Filing tax return 2012 possessions are not foreign countries. Filing tax return 2012 See Publication 54, Tax Guide for U. Filing tax return 2012 S. Filing tax return 2012 Citizens and Resident Aliens Abroad, for more detailed information. Filing tax return 2012 Rule 6—Your Investment Income Must Be $3,300 or Less You cannot claim the earned income credit unless your investment income is $3,300 or less. Filing tax return 2012 If your investment income is more than $3,300, you cannot claim the credit. Filing tax return 2012 Form 1040EZ. Filing tax return 2012   If you file Form 1040EZ, your investment income is the total of the amount on line 2 and the amount of any tax-exempt interest you wrote to the right of the words “Form 1040EZ” on line 2. Filing tax return 2012 Form 1040A. Filing tax return 2012   If you file Form 1040A, your investment income is the total of the amounts on lines 8a (taxable interest), 8b (tax-exempt interest), 9a (ordinary dividends), and 10 (capital gain distributions) on that form. Filing tax return 2012 Form 1040. Filing tax return 2012   If you file Form 1040, use Worksheet 1 in this chapter to figure your investment income. Filing tax return 2012    Worksheet 1. Filing tax return 2012 Investment Income If You Are Filing Form 1040 Use this worksheet to figure investment income for the earned income credit when you file Form 1040. Filing tax return 2012 Interest and Dividends         1. Filing tax return 2012 Enter any amount from Form 1040, line 8a 1. Filing tax return 2012   2. Filing tax return 2012 Enter any amount from Form 1040, line 8b, plus any amount on Form 8814, line 1b 2. Filing tax return 2012   3. Filing tax return 2012 Enter any amount from Form 1040, line 9a 3. Filing tax return 2012   4. Filing tax return 2012 Enter the amount from Form 1040, line 21, that is from Form 8814 if you are filing that form to report your child's interest and dividend income on your return. Filing tax return 2012 (If your child received an Alaska Permanent Fund dividend, use Worksheet 2 in this chapter to figure the amount to enter on this line. Filing tax return 2012 ) 4. Filing tax return 2012   Capital Gain Net Income         5. Filing tax return 2012 Enter the amount from Form 1040, line 13. Filing tax return 2012 If the amount on that line is a loss, enter -0- 5. Filing tax return 2012       6. Filing tax return 2012 Enter any gain from Form 4797, Sales of Business Property, line 7. Filing tax return 2012 If the amount on that line is a loss, enter -0-. Filing tax return 2012 (But, if you completed lines 8 and 9 of Form 4797, enter the amount from line 9 instead. Filing tax return 2012 ) 6. Filing tax return 2012       7. Filing tax return 2012 Substract line 6 of this worksheet from line 5 of this worksheet. Filing tax return 2012 (If the result is less than zero, enter -0-. Filing tax return 2012 ) 7. Filing tax return 2012   Royalties and Rental Income From Personal Property         8. Filing tax return 2012 Enter any royalty income from Schedule E, line 23b, plus any income from the rental of personal property shown on Form 1040, line 21 8. Filing tax return 2012       9. Filing tax return 2012 Enter any expenses from Schedule E, line 20, related to royalty income, plus any expenses from the rental of personal property deducted on Form 1040, line 36 9. Filing tax return 2012       10. Filing tax return 2012 Subtract the amount on line 9 of this worksheet from the amount on line 8. Filing tax return 2012 (If the result is less than zero, enter -0-. Filing tax return 2012 ) 10. Filing tax return 2012   Passive Activities         11. Filing tax return 2012 Enter the total of any net income from passive activities (such as income included on Schedule E, line 26, 29a (col. Filing tax return 2012 (g)), 34a (col. Filing tax return 2012 (d)), or 40). Filing tax return 2012 (See instructions below for lines 11 and 12. Filing tax return 2012 ) 11. Filing tax return 2012       12. Filing tax return 2012 Enter the total of any losses from passive activities (such as losses included on Schedule E, line 26, 29b (col. Filing tax return 2012 (f)), 34b (col. Filing tax return 2012 (c)), or 40). Filing tax return 2012 (See instructions below for lines 11 and 12. Filing tax return 2012 ) 12. Filing tax return 2012       13. Filing tax return 2012 Combine the amounts on lines 11 and 12 of this worksheet. Filing tax return 2012 (If the result is less than zero, enter -0-. Filing tax return 2012 ) 13. Filing tax return 2012   14. Filing tax return 2012 Add the amounts on lines 1, 2, 3, 4, 7, 10, and 13. Filing tax return 2012 Enter the total. Filing tax return 2012 This is your investment income 14. Filing tax return 2012   15. Filing tax return 2012 Is the amount on line 14 more than $3,300? ❑ Yes. Filing tax return 2012 You cannot take the credit. Filing tax return 2012  ❑ No. Filing tax return 2012 Go to Step 3 of the Form 1040 instructions for lines 64a and 64b to find out if you can take the credit (unless you are using this publication to find out if you can take the credit; in that case, go to Rule 7, next). Filing tax return 2012       Instructions for lines 11 and 12. Filing tax return 2012 In figuring the amount to enter on lines 11 and 12, do not take into account any royalty income (or loss) included on line 26 of Schedule E or any amount included in your earned income. Filing tax return 2012 To find out if the income on line 26 or line 40 of Schedule E is from a passive activity, see the Schedule E instructions. Filing tax return 2012 If any of the rental real estate income (or loss) included on Schedule E, line 26, is not from a passive activity, print “NPA” and the amount of that income (or loss) on the dotted line next to line 26. Filing tax return 2012 Worksheet 2. Filing tax return 2012 Worksheet for Line 4 of Worksheet 1 Complete this worksheet only if Form 8814 includes an Alaska Permanent Fund dividend. Filing tax return 2012 Note. Filing tax return 2012 Fill out a separate Worksheet 2 for each Form 8814. Filing tax return 2012     1. Filing tax return 2012 Enter the amount from Form 8814, line 2a 1. Filing tax return 2012   2. Filing tax return 2012 Enter the amount from Form 8814, line 2b 2. Filing tax return 2012   3. Filing tax return 2012 Subtract line 2 from line 1 3. Filing tax return 2012   4. Filing tax return 2012 Enter the amount from Form 8814, line 1a 4. Filing tax return 2012   5. Filing tax return 2012 Add lines 3 and 4 5. Filing tax return 2012   6. Filing tax return 2012 Enter the amount of the child's Alaska Permanent Fund dividend 6. Filing tax return 2012   7. Filing tax return 2012 Divide line 6 by line 5. Filing tax return 2012 Enter the result as a decimal (rounded to at least three places) 7. Filing tax return 2012   8. Filing tax return 2012 Enter the amount from Form 8814, line 12 8. Filing tax return 2012   9. Filing tax return 2012 Multiply line 7 by line 8 9. Filing tax return 2012   10. Filing tax return 2012 Subtract line 9 from line 8. Filing tax return 2012 Enter the result on line 4 of Worksheet 1 10. Filing tax return 2012     (If filing more than one Form 8814, enter on line 4 of Worksheet 1 the total of the amounts on line 10 of all Worksheets 2. Filing tax return 2012 )     Example—completing Worksheet 2. Filing tax return 2012 Your 10-year-old child has taxable interest income of $400, an Alaska Permanent Fund dividend of $1,000, and ordinary dividends of $1,100, of which $500 are qualified dividends. Filing tax return 2012 You choose to report this income on your return. Filing tax return 2012 You enter $400 on line 1a of Form 8814, $2,100 ($1,000 + $1,100) on line 2a, and $500 on line 2b. Filing tax return 2012 After completing lines 4 through 11, you enter $400 on line 12 of Form 8814 and line 21 of Form 1040. Filing tax return 2012 On Worksheet 2, you enter $2,100 on line 1, $500 on line 2, $1,600 on line 3, $400 on line 4, $2,000 on line 5, $1,000 on line 6, 0. Filing tax return 2012 500 on line 7, $400 on line 8, $200 on line 9, and $200 on line 10. Filing tax return 2012 You then enter $200 on line 4 of Worksheet 1. Filing tax return 2012 Rule 7—You Must Have Earned Income This credit is called the “earned income” credit because, to qualify, you must work and have earned income. Filing tax return 2012 If you are married and file a joint return, you meet this rule if at least one spouse works and has earned income. Filing tax return 2012 If you are an employee, earned income includes all the taxable income you get from your employer. Filing tax return 2012 Rule 15 has information that will help you figure the amount of your earned income. Filing tax return 2012 If you are self-employed or a statutory employee, you will figure your earned income on EIC Worksheet B in the Form 1040 instructions. Filing tax return 2012 Earned Income Earned income includes all of the following types of income. Filing tax return 2012 Wages, salaries, tips, and other taxable employee pay. Filing tax return 2012 Employee pay is earned income only if it is taxable. Filing tax return 2012 Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. Filing tax return 2012 But there is an exception for nontaxable combat pay, which you can choose to include in earned income, as explained later in this chapter. Filing tax return 2012 Net earnings from self-employment. Filing tax return 2012 Gross income received as a statutory employee. Filing tax return 2012 Wages, salaries, and tips. Filing tax return 2012    Wages, salaries, and tips you receive for working are reported to you on Form W-2, in box 1. Filing tax return 2012 You should report these on line 1 (Form 1040EZ) or line 7 (Forms 1040A and 1040). Filing tax return 2012 Nontaxable combat pay election. Filing tax return 2012   You can elect to include your nontaxable combat pay in earned income for the earned income credit. Filing tax return 2012 The amount of your nontaxable combat pay should be shown on your Form W-2, in box 12, with code Q. Filing tax return 2012 Electing to include nontaxable combat pay in earned income may increase or decrease your EIC. Filing tax return 2012 For details, see Nontaxable combat pay in chapter 4. Filing tax return 2012 Net earnings from self-employment. Filing tax return 2012   You may have net earnings from self-employment if: You own your own business, or You are a minister or member of a religious order. Filing tax return 2012 Minister's housing. Filing tax return 2012   The rental value of a home or a housing allowance provided to a minister as part of the minister's pay generally is not subject to income tax but is included in net earnings from self-employment. Filing tax return 2012 For that reason, it is included in earned income for the EIC (except in the cases described in Approved Form 4361 or Form 4029 , below). Filing tax return 2012 Statutory employee. Filing tax return 2012   You are a statutory employee if you receive a Form W-2 on which the “Statutory employee” box (box 13) is checked. Filing tax return 2012 You report your income and expenses as a statutory employee on Schedule C or C-EZ (Form 1040). Filing tax return 2012 Strike benefits. Filing tax return 2012   Strike benefits paid by a union to its members are earned income. Filing tax return 2012 Approved Form 4361 or Form 4029 This section is for persons who have an approved: Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners, or Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits. Filing tax return 2012 Each approved form exempts certain income from social security taxes. Filing tax return 2012 Each form is discussed here in terms of what is or is not earned income for the EIC. Filing tax return 2012 Form 4361. Filing tax return 2012   Whether or not you have an approved Form 4361, amounts you received for performing ministerial duties as an employee count as earned income. Filing tax return 2012 This includes wages, salaries, tips, and other taxable employee compensation. Filing tax return 2012 A nontaxable housing allowance or the nontaxable rental value of a home is not earned income. Filing tax return 2012 Also, amounts you received for performing ministerial duties, but not as an employee, do not count as earned income. Filing tax return 2012 Examples include fees for performing marriages and honoraria for delivering speeches. Filing tax return 2012 Form 4029. Filing tax return 2012   Whether or not you have an approved Form 4029, all wages, salaries, tips, and other taxable employee compensation count as earned income. Filing tax return 2012 However, amounts you received as a self-employed individual do not count as earned income. Filing tax return 2012 Also, in figuring earned income, do not subtract losses on Schedule C, C-EZ, or F from wages on line 7 of Form 1040. Filing tax return 2012 Disability Benefits If you retired on disability, taxable benefits you receive under your employer's disability retirement plan are considered earned income until you reach minimum retirement age. Filing tax return 2012 Minimum retirement age generally is the earliest age at which you could have received a pension or annuity if you were not disabled. Filing tax return 2012 You must report your taxable disability payments on line 7 of either Form 1040 or Form 1040A until you reach minimum retirement age. Filing tax return 2012 Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension and are not considered earned income. Filing tax return 2012 Report taxable pension payments on Form 1040, lines 16a and 16b, or Form 1040A, lines 12a and 12b. Filing tax return 2012 Disability insurance payments. Filing tax return 2012   Payments you received from a disability insurance policy that you paid the premiums for are not earned income. Filing tax return 2012 It does not matter whether you have reached minimum retirement age. Filing tax return 2012 If this policy is through your employer, the amount may be shown in box 12 of your Form W-2 with code “J. Filing tax return 2012 ” Income That Is Not Earned Income Examples of items that are not earned income include interest and dividends, pensions and annuities, social security and railroad retirement benefits (including disability benefits), alimony and child support, welfare benefits, workers' compensation benefits, unemployment compensation (insurance), nontaxable foster care payments, and veterans' benefits, including VA rehabilitation payments. Filing tax return 2012 Do not include any of these items in your earned income. Filing tax return 2012 Earnings while an inmate. Filing tax return 2012   Amounts received for work performed while an inmate in a penal institution are not earned income when figuring the earned income credit. Filing tax return 2012 This includes amounts for work performed while in a work release program or while in a halfway house. Filing tax return 2012 Workfare payments. Filing tax return 2012   Nontaxable workfare payments are not earned income for the EIC. Filing tax return 2012 These are cash payments certain people receive from a state or local agency that administers public assistance programs funded under the federal Temporary Assistance for Needy Families (TANF) program in return for certain work activities such as (1) work experience activities (including remodeling or repairing public housing) if sufficient private sector employment is not available, or (2) community service program activities. Filing tax return 2012 Community property. Filing tax return 2012   If you are married, but qualify to file as head of household under special rules for married taxpayers living apart (see Rule 3), and live in a state that has community property laws, your earned income for the EIC does not include any amount earned by your spouse that is treated as belonging to you under those laws. Filing tax return 2012 That amount is not earned income for the EIC, even though you must include it in your gross income on your income tax return. Filing tax return 2012 Your earned income includes the entire amount you earned, even if part of it is treated as belonging to your spouse under your state's community property laws. Filing tax return 2012 Nevada, Washington, and California domestic partners. Filing tax return 2012   If you are a registered domestic partner in Nevada, Washington, or California, the same rules apply. Filing tax return 2012 Your earned income for the EIC does not include any amount earned by your partner. Filing tax return 2012 Your earned income includes the entire amount you earned. Filing tax return 2012 For details, see Publication 555. Filing tax return 2012 Conservation Reserve Program (CRP) payments. Filing tax return 2012   If you were receiving social security retirement benefits or social security disability benefits at the time you received any CRP payments, your CRP payments are not earned income for the EIC. Filing tax return 2012 Nontaxable military pay. Filing tax return 2012   Nontaxable pay for members of the Armed Forces is not considered earned income for the EIC. Filing tax return 2012 Examples of nontaxable military pay are combat pay, the Basic Allowance for Housing (BAH), and the Basic Allowance for Subsistence (BAS). Filing tax return 2012 See Publication 3, Armed Forces' Tax Guide, for more information. Filing tax return 2012    Combat pay. Filing tax return 2012 You can elect to include your nontaxable combat pay in earned income for the EIC. Filing tax return 2012 See Nontaxable combat pay in chapter 4. Filing tax return 2012 Chapter 2—Rules If You Have a Qualifying Child If you have met all the rules in chapter 1, use this chapter to see if you have a qualifying child. Filing tax return 2012 This chapter discusses Rules 8 through 10. Filing tax return 2012 You must meet all three of those rules, in addition to the rules in chapters 1 and 4, to qualify for the earned income credit with a qualifying child. Filing tax return 2012 You must file Form 1040 or Form 1040A to claim the EIC with a qualifying child. Filing tax return 2012 (You cannot file Form 1040EZ. Filing tax return 2012 ) You also must complete Schedule EIC and attach it to your return. Filing tax return 2012 If you meet all the rules in chapter 1 and this chapter, read chapter 4 to find out what to do next. Filing tax return 2012 No qualifying child. Filing tax return 2012   If you do not meet Rule 8, you do not have a qualifying child. Filing tax return 2012 Read chapter 3 to find out if you can get the earned income credit without a qualifying child. Filing tax return 2012 Rule 8—Your Child Must Meet the Relationship, Age, Residency, and Joint Return Tests Your child is a qualifying child if your child meets four tests. Filing tax return 2012 The fours tests are: Relationship, Age, Residency, and Joint return. Filing tax return 2012 The four tests are illustrated in Figure 1. Filing tax return 2012 The paragraphs that follow contain more information about each test. Filing tax return 2012 Relationship Test To be your qualifying child, a child must be your: Son, daughter, stepchild, foster child, or a descendant of any of them (for example, your grandchild), or Brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them (for example, your niece or nephew). Filing tax return 2012 The following definitions clarify the relationship test. Filing tax return 2012 Adopted child. Filing tax return 2012   An adopted child is always treated as your own child. Filing tax return 2012 The term “adopted child” includes a child who was lawfully placed with you for legal adoption. Filing tax return 2012 Foster child. Filing tax return 2012   For the EIC, a person is your foster child if the child is placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. Filing tax return 2012 (An authorized placement agency includes a state or local government agency. Filing tax return 2012 It also includes a tax-exempt organization licensed by a state. Filing tax return 2012 In addition, it includes an Indian tribal government or an organization authorized by an Indian tribal government to place Indian children. Filing tax return 2012 ) Example. Filing tax return 2012 Debbie, who is 12 years old, was placed in your care 2 years ago by an authorized agency responsible for placing children in foster homes. Filing tax return 2012 Debbie is your foster child. Filing tax return 2012 Figure 1. Filing tax return 2012 Tests for Qualifying Child Please click here for the text description of the image. Filing tax return 2012 Conditions for Qualifying Child Age Test Your child must be: Under age 19 at the end of 2013 and younger than you (or your spouse, if filing jointly), Under age 24 at the end of 2013, a student, and younger than you (or your spouse, if filing jointly, or Permanently and totally disabled at any time during 2013, regardless of age. Filing tax return 2012 The following examples and definitions clarify the age test. Filing tax return 2012 Example 1—child not under age 19. Filing tax return 2012 Your son turned 19 on December 10. Filing tax return 2012 Unless he was permanently and totally disabled or a student, he is not a qualifying child because, at the end of the year, he was not under age 19. Filing tax return 2012 Example 2—child not younger than you or your spouse. Filing tax return 2012 Your 23-year-old brother, who is a full-time student and unmarried, lives with you and your spouse. Filing tax return 2012 He is not disabled. Filing tax return 2012 Both you and your spouse are 21 years old, and you file a joint return. Filing tax return 2012 Your brother is not your qualifying child because he is not younger than you or your spouse. Filing tax return 2012 Example 3—child younger than your spouse but not younger than you. Filing tax return 2012 The facts are the same as in Example 2 except that your spouse is 25 years old. Filing tax return 2012 Because your brother is younger than your spouse, he is your qualifying child, even though he is not younger than you. Filing tax return 2012 Student defined. Filing tax return 2012   To qualify as a student, your child must be, during some part of each of any 5 calendar months during the calendar year: A full-time student at a school that has a regular teaching staff, course of study, and regular student body at the school, or A student taking a full-time, on-farm training course given by a school described in (1), or a state, county, or local government. Filing tax return 2012   The 5 calendar months need not be consecutive. Filing tax return 2012   A full-time student is a student who is enrolled for the number of hours or courses the school considers to be full-time attendance. Filing tax return 2012 School defined. Filing tax return 2012   A school can be an elementary school, junior or senior high school, college, university, or technical, trade, or mechanical school. Filing tax return 2012 However, on-the-job training courses, correspondence schools, and schools offering courses only through the Internet do not count as schools for the EIC. Filing tax return 2012 Vocational high school students. Filing tax return 2012   Students who work in co-op jobs in private industry as a part of a school's regular course of classroom and practical training are considered full-time students. Filing tax return 2012 Permanently and totally disabled. Filing tax return 2012   Your child is permanently and totally disabled if both of the following apply. Filing tax return 2012 He or she cannot engage in any substantial gainful activity because of a physical or mental condition. Filing tax return 2012 A doctor determines the condition has lasted or can be expected to last continuously for at least a year or can lead to death. Filing tax return 2012 Residency Test Your child must have lived with you in the United States for more than half of 2013. Filing tax return 2012 The following definitions clarify the residency test. Filing tax return 2012 United States. Filing tax return 2012   This means the 50 states and the District of Columbia. Filing tax return 2012 It does not include Puerto Rico or U. Filing tax return 2012 S. Filing tax return 2012 possessions such as Guam. Filing tax return 2012 Homeless shelter. Filing tax return 2012   Your home can be any location where you regularly live. Filing tax return 2012 You do not need a traditional home. Filing tax return 2012 For example, if your child lived with you for more than half the year in one or more homeless shelters, your child meets the residency test. Filing tax return 2012 Military personnel stationed outside the United States. Filing tax return 2012   U. Filing tax return 2012 S. Filing tax return 2012 military personnel stationed outside the United States on extended active duty are considered to live in the United States during that duty period for purposes of the EIC. Filing tax return 2012 Extended active duty. Filing tax return 2012   Extended active duty means you are called or ordered to duty for an indefinite period or for a period of more than 90 days. Filing tax return 2012 Once you begin serving your extended active duty, you are still considered to have been on extended active duty even if you do not serve more than 90 days. Filing tax return 2012 Birth or death of child. Filing tax return 2012    child who was born or died in 2013 is treated as having lived with you for more than half of 2013 if your home was the child's home for more than half the time he or she was alive in 2013. Filing tax return 2012 Temporary absences. Filing tax return 2012   Count time that you or your child is away from home on a temporary absence due to a special circumstance as time the child lived with you. Filing tax return 2012 Examples of a special circumstance include illness, school attendance, business, vacation, military service, and detention in a juvenile facility. Filing tax return 2012 Kidnapped child. Filing tax return 2012   A kidnapped child is treated as living with you for more than half of the year if the child lived with you for more than half the part of the year before the date of the kidnapping. Filing tax return 2012 The child must be presumed by law enforcement authorities to have been kidnapped by someone who is not a member of your family or the child's family. Filing tax return 2012 This treatment applies for all years until the child is returned. Filing tax return 2012 However, the last year this treatment can apply is the earlier of: The year there is a determination that the child is dead, or The year the child would have reached age 18. Filing tax return 2012   If your qualifying child has been kidnapped and meets these requirements, enter “KC,” instead of a number, on line 6 of Schedule EIC. Filing tax return 2012 Joint Return Test To meet this test, the child cannot file a joint return for the year. Filing tax return 2012 Exception. Filing tax return 2012   An exception to the joint return test applies if your child and his or her spouse file a joint return only to claim a refund of income tax withheld or estimated tax paid. Filing tax return 2012 Example 1—child files joint return. Filing tax return 2012 You supported your 18-year-old daughter, and she lived with you all year while her husband was in the Armed Forces. Filing tax return 2012 He earned $25,000 for the year. Filing tax return 2012 The couple files a joint return. Filing tax return 2012 Because your daughter and her husband file a joint return, she is not your qualifying child. Filing tax return 2012 Example 2—child files joint return to get refund of tax withheld. Filing tax return 2012 Your 18-year-old son and his 17-year-old wife had $800 of wages from part-time jobs and no other income. Filing tax return 2012 They do not have a child. Filing tax return 2012 Neither is required to file a tax return. Filing tax return 2012 Taxes were taken out of their pay, so they file a joint return only to get a refund of the withheld taxes. Filing tax return 2012 The exception to the joint return test applies, so your son may be your qualifying child if all the other tests are met. Filing tax return 2012 Example 3—child files joint return to claim American opportunity credit. Filing tax return 2012 The facts are the same as in Example 2 except no taxes were taken out of your son's pay. Filing tax return 2012 He and his wife are not required to file a tax return, but they file a joint return to claim an American opportunity credit of $124 and get a refund of that amount. Filing tax return 2012 Because claiming the American opportunity credit is their reason for filing the return, they are not filing it only to claim a refund of income tax withheld or estimated tax paid. Filing tax return 2012 The exception to the joint return test does not apply, so your son is not your qualifying child. Filing tax return 2012 Married child. Filing tax return 2012   Even if your child does not file a joint return, if your child was married at the end of the year, he or she cannot be your qualifying child unless: You can claim an exemption for the child, or The reason you cannot claim an exemption for the child is that you let the child's other parent claim the exemption under the Special rule for divorced or separated parents (or parents who live apart) described later. Filing tax return 2012    Social security number. Filing tax return 2012 Your qualifying child must have a valid social security number (SSN), unless the child was born and died in 2013 and you attach to your return a copy of the child's birth certificate, death certificate, or hospital records showing a live birth. Filing tax return 2012 You cannot claim the EIC on the basis of a qualifying child if: The qualifying child's SSN is missing from your tax return or is incorrect, The qualifying child's social security card says “Not valid for employment” and was issued for use in getting a federally funded benefit, or Instead of an SSN, the qualifying child has: An individual taxpayer identification number (ITIN), which is issued to a noncitizen who cannot get an SSN, or An adoption taxpayer identification number (ATIN), issued to adopting parents who cannot get an SSN for the child being adopted until the adoption is final. Filing tax return 2012   If you have more than one qualifying child and only one has a valid SSN, you can use only that child to claim the EIC. Filing tax return 2012 For more information about SSNs, see Rule 2. Filing tax return 2012 Rule 9—Your Qualifying Child Cannot Be Used by More Than One Person To Claim the EIC Sometimes a child meets the tests to be a qualifying child of more than one person. Filing tax return 2012 However, only one of these persons can actually treat the child as a qualifying child. Filing tax return 2012 Only that person can use the child as a qualifying child to take all of the following tax benefits (provided the person is eligible for each benefit). Filing tax return 2012 The exemption for the child. Filing tax return 2012 The child tax credit. Filing tax return 2012 Head of household filing status. Filing tax return 2012 The credit for child and dependent care expenses. Filing tax return 2012 The exclusion for dependent care benefits. Filing tax return 2012 The EIC. Filing tax return 2012 The other person cannot take any of these benefits based on this qualifying child. Filing tax return 2012 In other words, you and the other person cannot agree to divide these tax benefits between you. Filing tax return 2012 The other person cannot take any of these tax benefits unless he or she has a different qualifying child. Filing tax return 2012 The tiebreaker rules, which follow, explain who, if anyone, can claim the EIC when more than one person has the same qualifying child. Filing tax return 2012 However, the tiebreaker rules do not apply if the other person is your spouse and you file a joint return. Filing tax return 2012 Tiebreaker rules. Filing tax return 2012   To determine which person can treat the child as a qualifying child to claim the six tax benefits just listed, the following tiebreaker rules apply. Filing tax return 2012 If only one of the persons is the child's parent, the child is treated as the qualifying child of the parent. Filing tax return 2012 If the parents file a joint return together and can claim the child as a qualifying child, the child is treated as the qualifying child of the parents. Filing tax return 2012 If the parents do not file a joint return together but both parents claim the child as a qualifying child, the IRS will treat the child as the qualifying child of the parent with whom the child lived for the longer period of time during the year. Filing tax return 2012 If the child lived with each parent for the same amount of time, the IRS will treat the child as the qualifying child of the parent who had the higher adjusted gross income (AGI) for the year. Filing tax return 2012 If no parent can claim the child as a qualifying child, the child is treated as the qualifying child of the person who had the highest AGI for the year. Filing tax return 2012 If a parent can claim the child as a qualifying child but no parent does so claim the child, the child is treated as the qualifying child of the person who had the highest AGI for the year, but only if that person's AGI is higher than the highest AGI of any of the child's parents who can claim the child. Filing tax return 2012 If the child's parents file a joint return with each other, this rule can be applied by treating the parents' total AGI as divided evenly between them. Filing tax return 2012 See Example 8. Filing tax return 2012   Subject to these tiebreaker rules, you and the other person may be able to choose which of you claims the child as a qualifying child. Filing tax return 2012 See Examples 1 through 13. Filing tax return 2012   If you cannot claim the EIC because your qualifying child is treated under the tiebreaker rules as the qualifying child of another person for 2013, you may be able to take the EIC using a different qualifying child, but you cannot take the EIC using the rules in chapter 3 for people who do not have a qualifying child. Filing tax return 2012 If the other person cannot claim the EIC. Filing tax return 2012   If you and someone else have the same qualifying child but the other person cannot claim the EIC because he or she is not eligible or his or her earned income or AGI is too high, you may be able to treat the child as a qualifying child. Filing tax return 2012 See Examples 6 and 7. Filing tax return 2012 But you cannot treat the child as a qualifying child to claim the EIC if the other person uses the child to claim any of the other six tax benefits listed earlier in this chapter. Filing tax return 2012 Examples. Filing tax return 2012    The following examples may help you in determining whether you can claim the EIC when you and someone else have the same qualifying child. Filing tax return 2012 Example 1—child lived with parent and grandparent. Filing tax return 2012 You and your 2-year-old son Jimmy lived with your mother all year. Filing tax return 2012 You are 25 years old, unmarried, and your AGI is $9,000. Filing tax return 2012 Your only income was $9,000 from a part-time job. Filing tax return 2012 Your mother's only income was $20,000 from her job, and her AGI is $20,000. Filing tax return 2012 Jimmy's father did not live with you or Jimmy. Filing tax return 2012 The special rule explained later for divorced or separated parents (or parents who live apart) does not apply. Filing tax return 2012 Jimmy is a qualifying child of both you and your mother because he meets the relationship, age, residency, and joint return tests for both you and your mother. Filing tax return 2012 However, only one of you can treat him as a qualifying child to claim the EIC (and the other tax benefits listed earlier in this chapter for which that person qualifies). Filing tax return 2012 He is not a qualifying child of anyone else, including his father. Filing tax return 2012 If you do not claim Jimmy as a qualifying child for the EIC or any of the other tax benefits listed earlier, your mother can treat him as a qualifying child to claim the EIC (and any of the other tax benefits listed earlier for which she qualifies). Filing tax return 2012 Example 2—parent has higher AGI than grandparent. Filing tax return 2012 The facts are the same as in Example 1 except your AGI is $25,000. Filing tax return 2012 Because your mother's AGI is not higher than yours, she cannot claim Jimmy as a qualifying child. Filing tax return 2012 Only you can claim him. Filing tax return 2012 Example 3—two persons claim same child. Filing tax return 2012 The facts are the same as in Example 1 except that you and your mother both claim Jimmy as a qualifying child. Filing tax return 2012 In this case, you as the child's parent will be the only one allowed to claim Jimmy as a qualifying child for the EIC and the other tax benefits listed earlier for which you qualify. Filing tax return 2012 The IRS will disallow your mother's claim to the EIC and any of the other tax benefits listed earlier unless she has another qualifying child. Filing tax return 2012 Example 4—qualifying children split between two persons. Filing tax return 2012 The facts are the same as in Example 1 except that you also have two other young children who are qualifying children of both you and your mother. Filing tax return 2012 Only one of you can claim each child. Filing tax return 2012 However, if your mother's AGI is higher than yours, you can allow your mother to claim one or more of the children. Filing tax return 2012 For example, if you claim one child, your mother can claim the other two. Filing tax return 2012 Example 5—taxpayer who is a qualifying child. Filing tax return 2012 The facts are the same as in Example 1 except that you are only 18 years old. Filing tax return 2012 This means you are a qualifying child of your mother. Filing tax return 2012 Because of Rule 10, discussed next, you cannot claim the EIC and cannot claim your son as a qualifying child. Filing tax return 2012 Only your mother may be able to treat Jimmy as a qualifying child to claim the EIC. Filing tax return 2012 If your mother meets all the other requirements for claiming the EIC and you do not claim Jimmy as a qualifying child for any of the other tax benefits listed earlier, your mother can claim both you and Jimmy as qualifying children for the EIC. Filing tax return 2012 Example 6—grandparent with too much earned income to claim EIC. Filing tax return 2012 The facts are the same as in Example 1 except that your mother earned $50,000 from her job. Filing tax return 2012 Because your mother's earned income is too high for her to claim the EIC, only you can claim the EIC using your son. Filing tax return 2012 Example 7—parent with too much earned income to claim EIC. Filing tax return 2012 The facts are the same as in Example 1 except that you earned $50,000 from your job and your AGI is $50,500. Filing tax return 2012 Your earned income is too high for you to claim the EIC. Filing tax return 2012 But your mother cannot claim the EIC either, because her AGI is not higher than yours. Filing tax return 2012 Example 8—child lived with both parents and grandparent. Filing tax return 2012 The facts are the same as in Example 1 except that you and Jimmy's father are married to each other, live with Jimmy and your mother, and have AGI of $30,000 on a joint return. Filing tax return 2012 If you and your husband do not claim Jimmy as a qualifying child for the EIC or any of the other tax benefits listed earlier, your mother can claim him instead. Filing tax return 2012 Even though the AGI on your joint return, $30,000, is more than your mother's AGI of $20,000, for this purpose half of the joint AGI can be treated as yours and half as your husband's. Filing tax return 2012 In other words, each parent's AGI can be treated as $15,000. Filing tax return 2012 Example 9—separated parents. Filing tax return 2012 You, your husband, and your 10-year-old son Joey lived together until August 1, 2013, when your husband moved out of the household. Filing tax return 2012 In August and September, Joey lived with you. Filing tax return 2012 For the rest of the year, Joey lived with your husband, who is Joey's father. Filing tax return 2012 Joey is a qualifying child of both you and your husband because he lived with each of you for more than half the year and because he met the relationship, age, and joint return tests for both of you. Filing tax return 2012 At the end of the year, you and your husband still were not divorced, legally separated, or separated under a written separation agreement, so the Special rule for divorced or separated parents (or parents who live apart) does not apply. Filing tax return 2012 You and your husband will file separate returns. Filing tax return 2012 Your husband agrees to let you treat Joey as a qualifying child. Filing tax return 2012 This means, if your husband does not claim Joey as a qualifying child for any of the tax benefits listed earlier, you can claim him as a qualifying child for any tax benefit listed earlier for which you qualify. Filing tax return 2012 However, your filing status is married filing separately, so you cannot claim the EIC or the credit for child and dependent care expenses. Filing tax return 2012 See Rule 3. Filing tax return 2012 Example 10—separated parents claim same child. Filing tax return 2012 The facts are the same as in Example 9 except that you and your husband both claim Joey as a qualifying child. Filing tax return 2012 In this case, only your husband will be allowed to treat Joey as a qualifying child. Filing tax return 2012 This is because, during 2013, the boy lived with him longer than with you. Filing tax return 2012 You cannot claim the EIC (either with or without a qualifying child). Filing tax return 2012 However, your husband's filing status is married filing separately, so he cannot claim the EIC or the credit for child and dependent care expenses. Filing tax return 2012 See Rule 3. Filing tax return 2012 Example 11—unmarried parents. Filing tax return 2012 You, your 5-year-old son, and your son's father lived together all year. Filing tax return 2012 You and your son's father are not married. Filing tax return 2012 Your son is a qualifying child of both you and his father because he meets the relationship, age, residency, and joint return tests for both you and his father. Filing tax return 2012 Your earned income and AGI are $12,000, and your son's father's earned income and AGI are $14,000. Filing tax return 2012 Neither of you had any other income. Filing tax return 2012 Your son's father agrees to let you treat the child as a qualifying child. Filing tax return 2012 This means, if your son's father does not claim your son as a qualifying child for the EIC or any of the other tax benefits listed earlier, you can claim him as a qualifying child for the EIC and any of the other tax benefits listed earlier for which you qualify. Filing tax return 2012 Example 12—unmarried parents claim same child. Filing tax return 2012 The facts are the same as in Example 11 except that you and your son's father both claim your son as a qualifying child. Filing tax return 2012 In this case, only your son's father will be allowed to treat your son as a qualifying child. Filing tax return 2012 This is because his AGI, $14,000, is more than your AGI, $12,000. Filing tax return 2012 You cannot claim the EIC (either with or without a qualifying child). Filing tax return 2012 Example 13—child did not live with a parent. Filing tax return 2012 You and your 7-year-old niece, your sister's child, lived with your mother all year. Filing tax return 2012 You are 25 years old, and your AGI is $9,300. Filing tax return 2012 Your only income was from a part-time job. Filing tax return 2012 Your mother's AGI is $15,000. Filing tax return 2012 Her only income was from her job. Filing tax return 2012 Your niece's parents file jointly, have an AGI of less than $9,000, and do not live with you or their child. Filing tax return 2012 Your niece is a qualifying child of both you and your mother because she meets the relationship, age, residency, and joint return tests for both you and your mother. Filing tax return 2012 However, only your mother can treat her as a qualifying child. Filing tax return 2012 This is because your mother's AGI, $15,000, is more than your AGI, $9,300. Filing tax return 2012 Special rule for divorced or separated parents (or parents who live apart). Filing tax return 2012   A child will be treated as the qualifying child of his or her noncustodial parent (for purposes of claiming an exemption and the child tax credit, but not for the EIC) if all of the following statements are true. Filing tax return 2012 The parents: Are divorced or legally separated under a decree of divorce or separate maintenance, Are separated under a written separation agreement, or Lived apart at all time during the last 6 months of 2013, whether or not they are or were married. Filing tax return 2012 The child received over half of his or her support for the year from the parents. Filing tax return 2012 The child is in the custody of one or both parents for more than half of 2013. Filing tax return 2012 Either of the following statements is true. Filing tax return 2012 The custodial parent signs Form 8332 or a substantially similar statement that he or she will not claim the child as a dependent for the year, and the noncustodial parent attaches the form or statement to his or her return. Filing tax return 2012 If the divorce decree or separation agreement went into effect after 1984 and before 2009, the noncustodial parent may be able to attach certain pages from the decree or agreement instead of Form 8332. Filing tax return 2012 A pre-1985 decree of divorce or separate maintenance or written separation agreement that applies to 2013 provides that the noncustodial parent can claim the child as a dependent, and the noncustodial parent provides at least $600 for support of the child during 2013. Filing tax return 2012 For details, see Publication 501. Filing tax return 2012 Also see Applying Rule 9 to divorced or separated parents (or parents who live apart), next. Filing tax return 2012 Applying Rule 9 to divorced or separated parents (or parents who live apart). Filing tax return 2012   If a child is treated as the qualifying child of the noncustodial parent under the special rule just described for children of divorced or separated parents (or parents who live apart), only the noncustodial parent can claim an exemption and the child tax credit for the child. Filing tax return 2012 However, the custodial parent, if eligible, or another eligible taxpayer can claim the child as a qualifying child for the EIC and other tax benefits listed earlier in this chapter. Filing tax return 2012 If the child is the qualifying child of more than one person for these benefits, then the tiebreaker rules determine which person can treat the child as a qualifying child. Filing tax return 2012 Example 1. Filing tax return 2012 You and your 5-year-old son lived all year with your mother, who paid the entire cost of keeping up the home. Filing tax return 2012 Your AGI is $10,000. Filing tax return 2012 Your mother’s AGI is $25,000. Filing tax return 2012 Your son's father did not live with you or your son. Filing tax return 2012 Under the Special rule for divorced or separated parents (or parents who live apart), your son is treated as the qualifying child of his father, who can claim an exemption and the child tax credit for the child. Filing tax return 2012 However, your son's father cannot claim your son as a qualifying child for head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, or the EIC. Filing tax return 2012 You and your mother did not have any child care expenses or dependent care benefits. Filing tax return 2012 If you do not claim your son as a qualifying child, your mother can claim him as a qualifying child for the EIC and head of household filing status, if she qualifies for these tax benefits. Filing tax return 2012 Example 2. Filing tax return 2012 The facts are the same as in Example 1 except that your AGI is $25,000 and your mother's AGI is $21,000. Filing tax return 2012 Your mother cannot claim your son as a qualifying child for any purpose because her AGI is not higher than yours. Filing tax return 2012 Example 3. Filing tax return 2012 The facts are the same as in Example 1 except that you and your mother both claim your son as a qualifying child for the EIC. Filing tax return 2012 Your mother also claims him as a qualifying child for head of household filing status. Filing tax return 2012 You as the child's parent will be the only one allowed to claim your son as a qualifying child for the EIC. Filing tax return 2012 The IRS will disallow your mother's claim to the EIC and head of household filing status unless she has another qualifying child. Filing tax return 2012 Rule 10—You Cannot Be a Qualifying Child of Another Taxpayer You are a qualifying child of another taxpayer (your parent, guardian, foster parent, etc. Filing tax return 2012 ) if all of the following statements are true. Filing tax return 2012 You are that person's son, daughter, stepchild, foster child, or a descendant of any of them. Filing tax return 2012 Or, you are that person's brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them. Filing tax return 2012 You were: Under age 19 at the end of the year and younger than that person (or that person's spouse, if the person files jointly), Under age 24 at the end of the year, a student, and younger than that person (or that person's spouse, if the person files jointly), or Permanently and totally disabled, regardless of age. Filing tax return 2012 You lived with that person in the United States for more than half of the year. Filing tax return 2012 You are not filing a joint return for the year (or are filing a joint return only to claim a refund of withheld income tax or estimated tax paid). Filing tax return 2012 For more details about the tests to be a qualifying child, see Rule 8. Filing tax return 2012 If you are a qualifying child of another taxpayer, you cannot claim the EIC. Filing tax return 2012 This is true even if the person for whom you are a qualifying child does not claim the EIC or meet all of the rules to claim the EIC. Filing tax return 2012 Put “No” beside line 64a (Form 1040) or line 38a (Form 1040A). Filing tax return 2012 Example. Filing tax return 2012 You and your daughter lived with your mother all year. Filing tax return 2012 You are 22 years old, unmarried, and attended a trade school full time. Filing tax return 2012 You had a part-time job and earned $5,700. Filing tax return 2012 You had no other income. Filing tax return 2012 Because you meet the relationship, age, residency, and joint return tests, you are a qualifying child of your mother. Filing tax return 2012 She can claim the EIC if she meets all the other requirements. Filing tax return 2012 Because you are your mother's qualifying child, you cannot claim the EIC. Filing tax return 2012 This is so even if your mother cannot or does not claim the EIC. Filing tax return 2012 Child of person not required to file a return. Filing tax return 2012   You are not the qualifying child of another taxpayer (and so may qualify to claim the EIC) if the person for whom you met the relationship, age, residency, and joint return tests is not required to file an income tax return and either: Does not file an income tax return, or Files a return only to get a refund of income tax withheld or estimated tax paid. Filing tax return 2012 Example 1—return not required. Filing tax return 2012 The facts are the same as in the last example except your mother had no gross income, is not required to file a 2013 tax return, and does not file a 2013 tax return. Filing tax return 2012 As a result, you are not your mother's qualifying child. Filing tax return 2012 You can claim the EIC if you meet all the other requirements to do so. Filing tax return 2012 Example 2—return filed to get refund of tax withheld. Filing tax return 2012 The facts are the same as in Example 1 except your mother had wages of $1,500 and had income tax withheld from her wages. Filing tax return 2012 She files a return only to get a refund of the income tax withheld and does not claim the EIC or any other tax credits or deductions. Filing tax return 2012 As a result, you are not your mother's qualifying child. Filing tax return 2012 You can claim the EIC if you meet all the other requirements to do so. Filing tax return 2012 Example 3—return filed to get EIC. Filing tax return 2012 The facts are the same as in Example 2 except your mother claimed the EIC on her return. Filing tax return 2012 Since she filed the return to get the EIC, she is not filing it only to get a refund of income tax withheld. Filing tax return 2012 As a result, you are your mother's qualifying child. Filing tax return 2012 You cannot claim the EIC. Filing tax return 2012 Chapter 3—Rules If You Do Not Have a Qualifying Child Use this chapter if you do not have a qualifying child and have met all the rules in chapter 1. Filing tax return 2012 This chapter discusses Rules 11 through 14. Filing tax return 2012 You must meet all four of those rules, in addition to the rules in chapters 1 and 4, to qualify for the earned income credit without a qualifying child. Filing tax return 2012 You can file Form 1040, Form 1040A, or Form 1040EZ to claim the EIC without a qualifying child. Filing tax return 2012 If you meet all the rules in chapter 1 and this chapter, read chapter 4 to find out what to do next. Filing tax return 2012 If you have a qualifying child. Filing tax return 2012   If you meet Rule 8, you have a qualifying child. Filing tax return 2012 If you meet Rule 8 and do not claim the EIC with a qualifying child, you cannot claim the EIC without a qualifying child. Filing tax return 2012 Rule 11—You Must Be at Least Age 25 but Under Age 65 You must be at least age 25 but under age 65 at the end of 2013. Filing tax return 2012 If you are married filing a joint return, either you or your spouse must be at least age 25 but under age 65 at the end of 2013. Filing tax return 2012 It does not matter which spouse meets the age test, as long as one of the spouses does. Filing tax return 2012 You meet the age test if you were born after December 31, 1948, and before January 2, 1989. Filing tax return 2012 If you are married filing a joint return, you meet the age test if either you or your spouse was born after December 31, 1948, and before January 2, 1989. Filing tax return 2012 If neither you nor your spouse meets the age test, you cannot claim the EIC. Filing tax return 2012 Put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). Filing tax return 2012 Death of spouse. Filing tax return 2012   If you are filing a joint return with your spouse who died in 2013, you meet the age test if your spouse was at least age 25 but under age 65 at the time of death. Filing tax return 2012 Example 1. Filing tax return 2012 You are age 28 and unmarried. Filing tax return 2012 You meet the age test. Filing tax return 2012 Example 2—spouse meets age test. Filing tax return 2012 You are married and filing a joint return. Filing tax return 2012 You are age 23 and your spouse is age 27. Filing tax return 2012 You meet the age test because your spouse is at least age 25 but under age 65. Filing tax return 2012 Example 3—spouse dies in 2013. Filing tax return 2012 You are married and filing a joint return with your spouse who died in August 2013. Filing tax return 2012 You are age 67. Filing tax return 2012 Your spouse would have become age 65 in November 2013. Filing tax return 2012 Because your spouse was under age 65 when she died, you meet the age test. Filing tax return 2012 Rule 12—You Cannot Be the Dependent of Another Person If you are not filing a joint return, you meet this rule if: You checked box 6a on Form 1040 or 1040A, or You did not check the “You” box on line 5 of Form 1040EZ, and you entered $10,000 on that line. Filing tax return 2012 If you are filing a joint return, you meet this rule if: You checked both box 6a and box 6b on Form 1040 or 1040A, or You and your spouse did not check either the “You” box or the “Spouse” box on line 5 of Form 1040EZ, and you entered $20,000 on that line. Filing tax return 2012 If you are not sure whether someone else can claim you as a dependent, get Publication 501 and read the rules for claiming a dependent. Filing tax return 2012 If someone else can claim you as a dependent on his or her return, but does not, you still cannot claim the credit. Filing tax return 2012 Example 1. Filing tax return 2012 In 2013, you were age 25, single, and living at home with your parents. Filing tax return 2012 You worked and were not a student. Filing tax return 2012 You earned $7,500. Filing tax return 2012 Your parents cannot claim you as a dependent. Filing tax return 2012 When you file your return, you claim an exemption for yourself by not checking the You box on line 5 of your Form 1040EZ and by entering $10,000 on that line. Filing tax return 2012 You meet this rule. Filing tax return 2012 You can claim the EIC if you meet all the other requirements. Filing tax return 2012 Example 2. Filing tax return 2012 The facts are the same as in Example 1, except that you earned $2,000. Filing tax return 2012 Your parents can claim you as a dependent but decide not to. Filing tax return 2012 You do not meet this rule. Filing tax return 2012 You cannot claim the credit because your parents could have claimed you as a dependent. Filing tax return 2012 Joint returns. Filing tax return 2012   You generally cannot be claimed as a dependent by another person if you are married and file a joint return. Filing tax return 2012   However, another person may be able to claim you as a dependent if you and your spouse file a joint return merely to claim a refund of income tax withheld or estimated tax paid. Filing tax return 2012 But neither you nor your spouse can be claimed as a dependent by another person if you claim the EIC on your joint return. Filing tax return 2012 Example 1—return filed to get refund of tax withheld. Filing tax return 2012 You are 26 years old. Filing tax return 2012 You and your wife live with your parents and had $800 of wages from part-time jobs and no other income. Filing tax return 2012 Neither you nor your wife is required to file a tax return. Filing tax return 2012 You do not have a child. Filing tax return 2012 Taxes were taken out of your pay so you file a joint return only to get a refund of the withheld taxes. Filing tax return 2012 Your parents are not disqualified from claiming an exemption for you just because you filed a joint return. Filing tax return 2012 They can claim exemptions for you and your wife if all the other tests to do so are met. Filing tax return 2012 Example 2—return filed to get EIC. Filing tax return 2012 The facts are the same as in Example 1except no taxes were taken out of your pay. Filing tax return 2012 Also, you and your wife are not required to file a tax return, but you file a joint return to claim an EIC of $63 and get a refund of that amount. Filing tax return 2012 Because claiming the EIC is your reason for filing the return, you are not filing it only to claim a refund of income tax withheld or estimated tax paid. Filing tax return 2012 Your parents cannot claim an exemption for either you or your wife. Filing tax return 2012 Rule 13—You Cannot Be a Qualifying Child of Another Taxpayer You are a qualifying child of another taxpayer (your parent, guardian, foster parent, etc. Filing tax return 2012 ) if all of the following statements are true. Filing tax return 2012 You are that person's son, daughter, stepchild, foster child, or a descendant of any of them. Filing tax return 2012 Or, you are that person's brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them. Filing tax return 2012 You were: Under age 19 at the end of the year and younger than that person (or that person's spouse, if the person files jointly), Under age 24 at the end of the year, a student, and younger than that person (or that person's spouse, if the person files jointly), or Permanently and totally disabled, regardless of age. Filing tax return 2012 You lived with that person in the United States for more than half of the year. Filing tax return 2012 You are not filing a joint return for the year (or are filing a joint return only to claim a refund of withheld income tax or estimated tax paid). Filing tax return 2012 For more details about the tests to be a qualifying child, see Rule 8. Filing tax return 2012 If you are a qualifying child of another taxpayer, you cannot claim the EIC. Filing tax return 2012 This is true even if the person for whom you are a qualifying child does not claim the EIC or meet all of the rules to claim the EIC. Filing tax return 2012 Put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). Filing tax return 2012 Example. Filing tax return 2012 You lived with your mother all year. Filing tax return 2012 You are age 26, unmarried, and permanently and totally disabled. Filing tax return 2012 Your only income was from a community center where you went three days a week to answer telephones. Filing tax return 2012 You earned $5,000 for the year and provided more than half of your own support. Filing tax return 2012 Because you meet the relationship, age, residency, and joint return tests, you are a qualifying child of your mother for the EIC. Filing tax return 2012 She can claim the EIC if she meets all the other requirements. Filing tax return 2012 Because you are a qualifying child of your mother, you cannot claim the EIC. Filing tax return 2012 This is so even if your mother cannot or does not claim the EIC. Filing tax return 2012 Joint returns. Filing tax return 2012   You generally cannot be a qualifying child of another taxpayer if you are married and file a joint return. Filing tax return 2012   However, you may be a qualifying child of another taxpayer if you and your spouse file a joint return merely to claim a refund of income tax withheld or estimated tax paid. Filing tax return 2012 But neither you nor your spouse can be a qualifying child of another taxpayer if you claim the EIC on your joint return. Filing tax return 2012 Child of person not required to file a return. Filing tax return 2012   You are not the qualifying child of another taxpayer (and so may qualify to claim the EIC) if the person for whom you meet the relationship, age, residency, and joint return tests is not required to file an income tax return and either: Does not file an income tax return, or Files a return only to get a refund of income tax withheld or estimated tax paid. Filing tax return 2012 Example 1—return not required. Filing tax return 2012 You lived all year with your father. Filing tax return 2012 You are 27 years old, unmarried, permanently and totally disabled, and earned $13,000. Filing tax return 2012 You have no other income, no children, and provided more than half of your own support. Filing tax return 2012 Your father had no gross income, is not required to file a 2013 tax return, and does not file a 2013 tax return. Filing tax return 2012 As a result, you are not your father's qualifying child. Filing tax return 2012 You can claim the EIC if you meet all the other requirements to do so. Filing tax return 2012 Example 2—return filed to get refund of tax withheld. Filing tax return 2012 The facts are the same as in Example 1 except your father had wages of $1,500 and had income tax withheld from his wages. Filing tax return 2012 He files a return only to get a refund of the income tax withheld and does not claim the EIC or any other tax credits or deductions. Filing tax return 2012 As a result, you are not your father's qualifying child. Filing tax return 2012 You can claim the EIC if you meet all the other requirements to do so. Filing tax return 2012 Example 3—return filed to get EIC. Filing tax return 2012 The facts are the same as in Example 2 except your father claimed the EIC on his return. Filing tax return 2012 Since he filed the return to get the EIC, he is not filing it only to get a refund of income tax withheld. Filing tax return 2012 As a result, you are your father's qualifying child. Filing tax return 2012 You cannot claim the EIC. Filing tax return 2012 Rule 14—You Must Have Lived in the United States More Than Half of the Year Your home (and your spouse's, if filing a joint return) must have been in the United States for more than half the year. Filing tax return 2012 If it was not, put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). Filing tax return 2012 United States. Filing tax return 2012   This means the 50 states and the District of Columbia. Filing tax return 2012 It does not include Puerto Rico or U. Filing tax return 2012 S. Filing tax return 2012 possessions such as Guam. Filing tax return 2012 Homeless shelter. Filing tax return 2012   Your home can be any location where you regularly live. Filing tax return 2012 You do not need a traditional home. Filing tax return 2012 If you lived in one or more homeless shelters in the United States for more than half the year, you meet this rule. Filing tax return 2012 Military personnel stationed outside the United States. Filing tax return 2012   U. Filing tax return 2012 S. Filing tax return 2012 military personnel stationed outside the United States on extended active duty (defined in chapter 2) are considered to live in the United States during that duty period for purposes of the EIC. Filing tax return 2012 Chapter 4—Figuring and Claiming the EIC You must meet one more rule to claim the EIC. Filing tax return 2012 You need to know the amount of your earned income to see if you meet the rule in this chapter. Filing tax return 2012 You also need to know that amount to figure your EIC. Filing tax return 2012 Rule 15—Earned Income Limits Your earned income must be less than: $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children, $43,038 ($48,378 for married filing jointly) if you have two qualifying children, $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. Filing tax return 2012 Earned Income Earned income generally means wages, salaries, tips, other taxable employee pay, and net earnings from self-employment. Filing tax return 2012 Employee pay is earned income only if it is taxable. Filing tax return 2012 Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. Filing tax return 2012 But there is an exception for nontaxable combat pay, which you can choose to include in earned income. Filing tax return 2012 Earned income is explained in detail in Rule 7 in chapter 1. Filing tax return 2012 Figuring earned income. Filing tax return 2012   If you are self-employed, a statutory employee, or a member of the clergy or a church employee who files Schedule SE (Form 1040), you will figure your earned income when you fill out Part 4 of EIC Worksheet B in the Form 1040 instructions. Filing tax return 2012   Otherwise, figure your earned income by using the worksheet in Step 5 of the Form 1040 instructions for lines 64a and 64b or the Form 1040A instructions for lines 38a and 38b, or the worksheet in Step 2 of the Form 1040EZ instructions for lines 8a and 8b. Filing tax return 2012   When using one of those worksheets to figure your earned income, you will start with the amount on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ). Filing tax return 2012 You will then reduce that amount by any amount included on that line and described in the following list. Filing tax return 2012 Scholarship or fellowship grants not reported on a Form W-2. Filing tax return 2012 A scholarship or fellowship grant that was not reported to you on a Form W-2 is not considered earned income for the earned income credit. Filing tax return 2012 Inmate's income. Filing tax return 2012 Amounts received for work performed while an inmate in a penal institution are not earned income for the earned income credit. Filing tax return 2012 This includes amounts received for work performed while in a work release program or while in a halfway house. Filing tax return 2012 If you received any amount for work done while an inmate in a penal institution and that amount is included in the total on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ), put “PRI” and the amount on the dotted line next to line 7 (Form 1040), in the space to the left of the entry space for line 7 (Form 1040A), or in the space to the left of line 1 (Form 1040EZ). Filing tax return 2012 Pension or annuity from deferred compensation plans. Filing tax return 2012 A pension or annuity from a nonqualified deferred compensation plan or a nongovernmental section 457 plan is not considered earned income for the earned income credit. Filing tax return 2012 If you received such an amount and it was included in the total on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ), put “DFC” and the amount on the dotted line next to line 7 (Form 1040), in the space to the left of the entry space for line 7 (Form 1040A), or in the space to the left of line 1 (Form 1040EZ). Filing tax return 2012 This amount may be reported in box 11 of your Form W-2. Filing tax return 2012 If you received such an amount but box 11 is blank, contact your employer for the amount received as a pension or an annuity. Filing tax return 2012 Clergy. Filing tax return 2012   If you are a member of the clergy who files Schedule SE and the amount on line 2 of that schedule includes an amount that was also re
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The Filing Tax Return 2012

Filing tax return 2012 4. Filing tax return 2012   Transportation Table of Contents Parking fees. Filing tax return 2012 Advertising display on car. Filing tax return 2012 Car pools. Filing tax return 2012 Hauling tools or instruments. Filing tax return 2012 Union members' trips from a union hall. Filing tax return 2012 Car ExpensesStandard Mileage Rate Actual Car Expenses Leasing a Car Disposition of a Car This chapter discusses expenses you can deduct for business transportation when you are not traveling away from home as defined in chapter 1. Filing tax return 2012 These expenses include the cost of transportation by air, rail, bus, taxi, etc. Filing tax return 2012 , and the cost of driving and maintaining your car. Filing tax return 2012 Transportation expenses include the ordinary and necessary costs of all of the following. Filing tax return 2012 Getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home. Filing tax return 2012 Tax home is defined in chapter 1. Filing tax return 2012 Visiting clients or customers. Filing tax return 2012 Going to a business meeting away from your regular workplace. Filing tax return 2012 Getting from your home to a temporary workplace when you have one or more regular places of work. Filing tax return 2012 These temporary workplaces can be either within the area of your tax home or outside that area. Filing tax return 2012 Transportation expenses do not include expenses you have while traveling away from home overnight. Filing tax return 2012 Those expenses are travel expenses discussed in chapter 1 . Filing tax return 2012 However, if you use your car while traveling away from home overnight, use the rules in this chapter to figure your car expense deduction. Filing tax return 2012 See Car Expenses , later. Filing tax return 2012 Daily transportation expenses you incur while traveling from home to one or more regular places of business are generally nondeductible commuting expenses. Filing tax return 2012 However, there may be exceptions to this general rule. Filing tax return 2012 You can deduct daily transportation expenses incurred going between your residence and a temporary work station outside the metropolitan area where you live. Filing tax return 2012 Also, daily transportation expenses can be deducted if: (1) you have one or more regular work locations away from your residence or (2) your residence is your principal place of business and you incur expenses going between the residence and another work location in the same trade or business, regardless of whether the work is temporary or permanent and regardless of the distance. Filing tax return 2012 Illustration of transportation expenses. Filing tax return 2012    Figure B , earlier, illustrates the rules that apply for deducting transportation expenses when you have a regular or main job away from your home. Filing tax return 2012 You may want to refer to it when deciding whether you can deduct your transportation expenses. Filing tax return 2012 Temporary work location. Filing tax return 2012   If you have one or more regular work locations away from your home and you commute to a temporary work location in the same trade or business, you can deduct the expenses of the daily round-trip transportation between your home and the temporary location, regardless of distance. Filing tax return 2012   If your employment at a work location is realistically expected to last (and does in fact last) for 1 year or less, the employment is temporary unless there are facts and circumstances that would indicate otherwise. Filing tax return 2012   If your employment at a work location is realistically expected to last for more than 1 year or if there is no realistic expectation that the employment will last for 1 year or less, the employment is not temporary, regardless of whether it actually lasts for more than 1 year. Filing tax return 2012   If employment at a work location initially is realistically expected to last for 1 year or less, but at some later date the employment is realistically expected to last more than 1 year, that employment will be treated as temporary (unless there are facts and circumstances that would indicate otherwise) until your expectation changes. Filing tax return 2012 It will not be treated as temporary after the date you determine it will last more than 1 year. Filing tax return 2012   If the temporary work location is beyond the general area of your regular place of work and you stay overnight, you are traveling away from home. Filing tax return 2012 You may have deductible travel expenses as discussed in chapter 1 . Filing tax return 2012 No regular place of work. Filing tax return 2012   If you have no regular place of work but ordinarily work in the metropolitan area where you live, you can deduct daily transportation costs between home and a temporary work site outside that metropolitan area. Filing tax return 2012   Generally, a metropolitan area includes the area within the city limits and the suburbs that are considered part of that metropolitan area. Filing tax return 2012   You cannot deduct daily transportation costs between your home and temporary work sites within your metropolitan area. Filing tax return 2012 These are nondeductible commuting expenses. Filing tax return 2012 Two places of work. Filing tax return 2012   If you work at two places in one day, whether or not for the same employer, you can deduct the expense of getting from one workplace to the other. Filing tax return 2012 However, if for some personal reason you do not go directly from one location to the other, you cannot deduct more than the amount it would have cost you to go directly from the first location to the second. Filing tax return 2012   Transportation expenses you have in going between home and a part-time job on a day off from your main job are commuting expenses. Filing tax return 2012 You cannot deduct them. Filing tax return 2012 Armed Forces reservists. Filing tax return 2012   A meeting of an Armed Forces reserve unit is a second place of business if the meeting is held on a day on which you work at your regular job. Filing tax return 2012 You can deduct the expense of getting from one workplace to the other as just discussed under Two places of work . Filing tax return 2012   You usually cannot deduct the expense if the reserve meeting is held on a day on which you do not work at your regular job. Filing tax return 2012 In this case, your transportation generally is a nondeductible commuting expense. Filing tax return 2012 However, you can deduct your transportation expenses if the location of the meeting is temporary and you have one or more regular places of work. Filing tax return 2012   If you ordinarily work in a particular metropolitan area but not at any specific location and the reserve meeting is held at a temporary location outside that metropolitan area, you can deduct your transportation expenses. Filing tax return 2012   If you travel away from home overnight to attend a guard or reserve meeting, you can deduct your travel expenses. Filing tax return 2012 These expenses are discussed in chapter 1 . Filing tax return 2012   If you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you may be able to deduct some of your reserve-related travel costs as an adjustment to gross income rather than as an itemized deduction. Filing tax return 2012 For more information, see Armed Forces Reservists Traveling More Than 100 Miles From Home under Special Rules, in chapter 6. Filing tax return 2012 Commuting expenses. Filing tax return 2012   You cannot deduct the costs of taking a bus, trolley, subway, or taxi, or of driving a car between your home and your main or regular place of work. Filing tax return 2012 These costs are personal commuting expenses. Filing tax return 2012 You cannot deduct commuting expenses no matter how far your home is from your regular place of work. Filing tax return 2012 You cannot deduct commuting expenses even if you work during the commuting trip. Filing tax return 2012 Example. Filing tax return 2012 You sometimes use your cell phone to make business calls while commuting to and from work. Filing tax return 2012 Sometimes business associates ride with you to and from work, and you have a business discussion in the car. Filing tax return 2012 These activities do not change the trip from personal to business. Filing tax return 2012 You cannot deduct your commuting expenses. Filing tax return 2012 Parking fees. Filing tax return 2012    Fees you pay to park your car at your place of business are nondeductible commuting expenses. Filing tax return 2012 You can, however, deduct business-related parking fees when visiting a customer or client. Filing tax return 2012 Advertising display on car. Filing tax return 2012   Putting display material that advertises your business on your car does not change the use of your car from personal use to business use. Filing tax return 2012 If you use this car for commuting or other personal uses, you still cannot deduct your expenses for those uses. Filing tax return 2012 Car pools. Filing tax return 2012   You cannot deduct the cost of using your car in a nonprofit car pool. Filing tax return 2012 Do not include payments you receive from the passengers in your income. Filing tax return 2012 These payments are considered reimbursements of your expenses. Filing tax return 2012 However, if you operate a car pool for a profit, you must include payments from passengers in your income. Filing tax return 2012 You can then deduct your car expenses (using the rules in this publication). Filing tax return 2012 Hauling tools or instruments. Filing tax return 2012   Hauling tools or instruments in your car while commuting to and from work does not make your car expenses deductible. Filing tax return 2012 However, you can deduct any additional costs you have for hauling tools or instruments (such as for renting a trailer you tow with your car). Filing tax return 2012 Union members' trips from a union hall. Filing tax return 2012   If you get your work assignments at a union hall and then go to your place of work, the costs of getting from the union hall to your place of work are nondeductible commuting expenses. Filing tax return 2012 Although you need the union to get your work assignments, you are employed where you work, not where the union hall is located. Filing tax return 2012 Office in the home. Filing tax return 2012   If you have an office in your home that qualifies as a principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. Filing tax return 2012 (See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. Filing tax return 2012 ) Examples of deductible transportation. Filing tax return 2012   The following examples show when you can deduct transportation expenses based on the location of your work and your home. Filing tax return 2012 Example 1. Filing tax return 2012 You regularly work in an office in the city where you live. Filing tax return 2012 Your employer sends you to a 1-week training session at a different office in the same city. Filing tax return 2012 You travel directly from your home to the training location and return each day. Filing tax return 2012 You can deduct the cost of your daily round-trip transportation between your home and the training location. Filing tax return 2012 Example 2. Filing tax return 2012 Your principal place of business is in your home. Filing tax return 2012 You can deduct the cost of round-trip transportation between your qualifying home office and your client's or customer's place of business. Filing tax return 2012 Example 3. Filing tax return 2012 You have no regular office, and you do not have an office in your home. Filing tax return 2012 In this case, the location of your first business contact inside the metropolitan area is considered your office. Filing tax return 2012 Transportation expenses between your home and this first contact are nondeductible commuting expenses. Filing tax return 2012 Transportation expenses between your last business contact and your home are also nondeductible commuting expenses. Filing tax return 2012 While you cannot deduct the costs of these trips, you can deduct the costs of going from one client or customer to another. Filing tax return 2012 Car Expenses If you use your car for business purposes, you ordinarily can deduct car expenses. Filing tax return 2012 You generally can use one of the two following methods to figure your deductible expenses. Filing tax return 2012 Standard mileage rate. Filing tax return 2012 Actual car expenses. Filing tax return 2012 If you use actual expenses to figure your deduction for a car you lease, there are rules that affect the amount of your lease payments you can deduct. Filing tax return 2012 See Leasing a Car , later. Filing tax return 2012 In this publication, “car” includes a van, pickup, or panel truck. Filing tax return 2012 For the definition of “car” for depreciation purposes, see Car defined under Actual Car Expenses, later. Filing tax return 2012 Rural mail carriers. Filing tax return 2012   If you are a rural mail carrier, you may be able to treat the qualified reimbursement you received as your allowable expense. Filing tax return 2012 Because the qualified reimbursement is treated as paid under an accountable plan, your employer should not include the reimbursement in your income. Filing tax return 2012   If your vehicle expenses are more than the amount of your reimbursement, you can deduct the unreimbursed expenses as an itemized deduction on Schedule A (Form 1040). Filing tax return 2012 You must complete Form 2106 and attach it to your Form 1040, U. Filing tax return 2012 S. Filing tax return 2012 Individual Income Tax Return. Filing tax return 2012   A “qualified reimbursement” is the reimbursement you receive that meets both of the following conditions. Filing tax return 2012 It is given as an equipment maintenance allowance (EMA) to employees of the U. Filing tax return 2012 S. Filing tax return 2012 Postal Service. Filing tax return 2012 It is at the rate contained in the 1991 collective bargaining agreement. Filing tax return 2012 Any later agreement cannot increase the qualified reimbursement amount by more than the rate of inflation. Filing tax return 2012 See your employer for information on your reimbursement. Filing tax return 2012    If you are a rural mail carrier and received a qualified reimbursement, you cannot use the standard mileage rate. Filing tax return 2012 Standard Mileage Rate You may be able to use the standard mileage rate to figure the deductible costs of operating your car for business purposes. Filing tax return 2012 For 2013, the standard mileage rate for the cost of operating your car for business use is 56½ cents per mile. Filing tax return 2012 If you use the standard mileage rate for a year, you cannot deduct your actual car expenses for that year. Filing tax return 2012 You cannot deduct depreciation, lease payments, maintenance and repairs, gasoline (including gasoline taxes), oil, insurance, or vehicle registration fees. Filing tax return 2012 See Choosing the standard mileage rate and Standard mileage rate not allowed, later. Filing tax return 2012 You generally can use the standard mileage rate whether or not you are reimbursed and whether or not any reimbursement is more or less than the amount figured using the standard mileage rate. Filing tax return 2012 See chapter 6 for more information on reimbursements . Filing tax return 2012 Choosing the standard mileage rate. Filing tax return 2012   If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Filing tax return 2012 Then, in later years, you can choose to use either the standard mileage rate or actual expenses. Filing tax return 2012   If you want to use the standard mileage rate for a car you lease, you must use it for the entire lease period. Filing tax return 2012 For leases that began on or before December 31, 1997, the standard mileage rate must be used for the entire portion of the lease period (including renewals) that is after 1997. Filing tax return 2012   You must make the choice to use the standard mileage rate by the due date (including extensions) of your return. Filing tax return 2012 You cannot revoke the choice. Filing tax return 2012 However, in later years, you can switch from the standard mileage rate to the actual expenses method. Filing tax return 2012 If you change to the actual expenses method in a later year, but before your car is fully depreciated, you have to estimate the remaining useful life of the car and use straight line depreciation. Filing tax return 2012 Example. Filing tax return 2012 Larry is an employee who occasionally uses his own car for business purposes. Filing tax return 2012 He purchased the car in 2011, but he did not claim any unreimbursed employee expenses on his 2011 tax return. Filing tax return 2012 Because Larry did not use the standard mileage rate the first year the car was available for business use, he cannot use the standard mileage rate in 2013 to claim unreimbursed employee business expenses. Filing tax return 2012   For more information about depreciation included in the standard mileage rate, see Exception under Methods of depreciation, later. Filing tax return 2012 Standard mileage rate not allowed. Filing tax return 2012   You cannot use the standard mileage rate if you: Use five or more cars at the same time (such as in fleet operations), Claimed a depreciation deduction for the car using any method other than straight line, for example, MACRS (as discussed later under Depreciation Deduction), Claimed a section 179 deduction (discussed later) on the car, Claimed the special depreciation allowance on the car, Claimed actual car expenses after 1997 for a car you leased, or Are a rural mail carrier who received a qualified reimbursement. Filing tax return 2012 (See Rural mail carriers , earlier. Filing tax return 2012 ) Note. Filing tax return 2012 You can elect to use the standard mileage rate if you used a car for hire (such as a taxi) unless the standard mileage rate is otherwise not allowed, as discussed above. Filing tax return 2012 Five or more cars. Filing tax return 2012   If you own or lease five or more cars that are used for business at the same time, you cannot use the standard mileage rate for the business use of any car. Filing tax return 2012 However, you may be able to deduct your actual expenses for operating each of the cars in your business. Filing tax return 2012 See Actual Car Expenses , later, for information on how to figure your deduction. Filing tax return 2012   You are not using five or more cars for business at the same time if you alternate using (use at different times) the cars for business. Filing tax return 2012   The following examples illustrate the rules for when you can and cannot use the standard mileage rate for five or more cars. Filing tax return 2012 Example 1. Filing tax return 2012 Marcia, a salesperson, owns three cars and two vans that she alternates using for calling on her customers. Filing tax return 2012 She can use the standard mileage rate for the business mileage of the three cars and the two vans because she does not use them at the same time. Filing tax return 2012 Example 2. Filing tax return 2012 Tony and his employees use his four pickup trucks in his landscaping business. Filing tax return 2012 During the year, he traded in two of his old trucks for two newer ones. Filing tax return 2012 Tony can use the standard mileage rate for the business mileage of all six of the trucks he owned during the year. Filing tax return 2012 Example 3. Filing tax return 2012 Chris owns a repair shop and an insurance business. Filing tax return 2012 He and his employees use his two pickup trucks and van for the repair shop. Filing tax return 2012 Chris alternates using his two cars for the insurance business. Filing tax return 2012 No one else uses the cars for business purposes. Filing tax return 2012 Chris can use the standard mileage rate for the business use of the pickup trucks, van, and the cars because he never has more than four vehicles used for business at the same time. Filing tax return 2012 Example 4. Filing tax return 2012 Maureen owns a car and four vans that are used in her housecleaning business. Filing tax return 2012 Her employees use the vans, and she uses the car to travel to various customers. Filing tax return 2012 Maureen cannot use the standard mileage rate for the car or the vans. Filing tax return 2012 This is because all five vehicles are used in Maureen's business at the same time. Filing tax return 2012 She must use actual expenses for all vehicles. Filing tax return 2012 Interest. Filing tax return 2012   If you are an employee, you cannot deduct any interest paid on a car loan. Filing tax return 2012 This applies even if you use the car 100% for business as an employee. Filing tax return 2012   However, if you are self-employed and use your car in your business, you can deduct that part of the interest expense that represents your business use of the car. Filing tax return 2012 For example, if you use your car 60% for business, you can deduct 60% of the interest on Schedule C (Form 1040). Filing tax return 2012 You cannot deduct the part of the interest expense that represents your personal use of the car. Filing tax return 2012    If you use a home equity loan to purchase your car, you may be able to deduct the interest. Filing tax return 2012 See Publication 936, Home Mortgage Interest Deduction, for more information. Filing tax return 2012 Personal property taxes. Filing tax return 2012   If you itemize your deductions on Schedule A (Form 1040), you can deduct on line 7 state and local personal property taxes on motor vehicles. Filing tax return 2012 You can take this deduction even if you use the standard mileage rate or if you do not use the car for business. Filing tax return 2012   If you are self-employed and use your car in your business, you can deduct the business part of state and local personal property taxes on motor vehicles on Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040). Filing tax return 2012 If you itemize your deductions, you can include the remainder of your state and local personal property taxes on the car on Schedule A (Form 1040). Filing tax return 2012 Parking fees and tolls. Filing tax return 2012   In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. Filing tax return 2012 (Parking fees you pay to park your car at your place of work are nondeductible commuting expenses. Filing tax return 2012 ) Sale, trade-in, or other disposition. Filing tax return 2012   If you sell, trade in, or otherwise dispose of your car, you may have a gain or loss on the transaction or an adjustment to the basis of your new car. Filing tax return 2012 See Disposition of a Car , later. Filing tax return 2012 Actual Car Expenses If you do not use the standard mileage rate, you may be able to deduct your actual car expenses. Filing tax return 2012 If you qualify to use both methods, you may want to figure your deduction both ways to see which gives you a larger deduction. Filing tax return 2012 Actual car expenses include: Depreciation Licenses Lease  payments Registration  fees Gas Insurance Repairs Oil Garage rent Tires Tolls Parking fees   If you have fully depreciated a car that you still use in your business, you can continue to claim your other actual car expenses. Filing tax return 2012 Continue to keep records, as explained later in chapter 5 . Filing tax return 2012 Business and personal use. Filing tax return 2012   If you use your car for both business and personal purposes, you must divide your expenses between business and personal use. Filing tax return 2012 You can divide your expense based on the miles driven for each purpose. Filing tax return 2012 Example. Filing tax return 2012 You are a sales representative for a clothing firm and drive your car 20,000 miles during the year: 12,000 miles for business and 8,000 miles for personal use. Filing tax return 2012 You can claim only 60% (12,000 ÷ 20,000) of the cost of operating your car as a business expense. Filing tax return 2012 Employer-provided vehicle. Filing tax return 2012   If you use a vehicle provided by your employer for business purposes, you can deduct your actual unreimbursed car expenses. Filing tax return 2012 You cannot use the standard mileage rate. Filing tax return 2012 See Vehicle Provided by Your Employer in chapter 6. Filing tax return 2012 Interest on car loans. Filing tax return 2012   If you are an employee, you cannot deduct any interest paid on a car loan. Filing tax return 2012 This interest is treated as personal interest and is not deductible. Filing tax return 2012 If you are self-employed and use your car in that business, see Interest , earlier, under Standard Mileage Rate. Filing tax return 2012 Taxes paid on your car. Filing tax return 2012   If you are an employee, you can deduct personal property taxes paid on your car if you itemize deductions. Filing tax return 2012 Enter the amount paid on line 7 of Schedule A (Form 1040). Filing tax return 2012 Sales taxes. Filing tax return 2012   Generally, sales taxes on your car are part of your car's basis and are recovered through depreciation, discussed later. Filing tax return 2012 Fines and collateral. Filing tax return 2012   You cannot deduct fines you pay or collateral you forfeit for traffic violations. Filing tax return 2012 Casualty and theft losses. Filing tax return 2012   If your car is damaged, destroyed, or stolen, you may be able to deduct part of the loss not covered by insurance. Filing tax return 2012 See Publication 547, Casualties, Disasters, and Thefts, for information on deducting a loss on your car. Filing tax return 2012 Depreciation and section 179 deductions. Filing tax return 2012   Generally, the cost of a car, plus sales tax and improvements, is a capital expense. Filing tax return 2012 Because the benefits last longer than 1 year, you generally cannot deduct a capital expense. Filing tax return 2012 However, you can recover this cost through the section 179 deduction (the deduction allowed by section 179 of the Internal Revenue Code), special depreciation allowance, and depreciation deductions. Filing tax return 2012 Depreciation allows you to recover the cost over more than 1 year by deducting part of it each year. Filing tax return 2012 The section 179 deduction , special depreciation allowance , and depreciation deductions are discussed later. Filing tax return 2012   Generally, there are limits on these deductions. Filing tax return 2012 Special rules apply if you use your car 50% or less in your work or business. Filing tax return 2012   You can claim a section 179 deduction and use a depreciation method other than straight line only if you do not use the standard mileage rate to figure your business-related car expenses in the year you first place a car in service. Filing tax return 2012   If, in the year you first place a car in service, you claim either a section 179 deduction or use a depreciation method other than straight line for its estimated useful life, you cannot use the standard mileage rate on that car in any future year. Filing tax return 2012 Car defined. Filing tax return 2012   For depreciation purposes, a car is any four-wheeled vehicle (including a truck or van) made primarily for use on public streets, roads, and highways. Filing tax return 2012 Its unloaded gross vehicle weight must not be more than 6,000 pounds. Filing tax return 2012 A car includes any part, component, or other item physically attached to it or usually included in the purchase price. Filing tax return 2012   A car does not include: An ambulance, hearse, or combination ambulance-hearse used directly in a business, A vehicle used directly in the business of transporting persons or property for pay or hire, or A truck or van that is a qualified nonpersonal use vehicle. Filing tax return 2012 Qualified nonpersonal use vehicles. Filing tax return 2012   These are vehicles that by their nature are not likely to be used more than a minimal amount for personal purposes. Filing tax return 2012 They include trucks and vans that have been specially modified so that they are not likely to be used more than a minimal amount for personal purposes, such as by installation of permanent shelving and painting the vehicle to display advertising or the company's name. Filing tax return 2012 Delivery trucks with seating only for the driver, or only for the driver plus a folding jump seat, are qualified nonpersonal use vehicles. Filing tax return 2012 More information. Filing tax return 2012   See Depreciation Deduction , later, for more information on how to depreciate your vehicle. Filing tax return 2012 Section 179 Deduction The section 179 deduction allows you to treat a portion or all of the cost of a car as a current expense. Filing tax return 2012 If you choose to deduct all or part of the cost as a current expense, you must reduce your depreciable basis in the car by the amount of the section 179 deduction. Filing tax return 2012 There is a limit on the total section 179 deduction, special depreciation allowance, and depreciation deduction for cars, trucks, and vans that may reduce or eliminate any benefit from claiming the section 179 deduction. Filing tax return 2012 See Depreciation Limits, later. Filing tax return 2012 You can claim the section 179 deduction only in the year you place the car in service. Filing tax return 2012 For this purpose, a car is placed in service when it is ready and available for a specifically assigned use, whether in a trade or business, a tax-exempt activity, a personal activity, or for the production of income. Filing tax return 2012 Even if you are not using the property, it is in service when it is ready and available for its specifically assigned use. Filing tax return 2012 A car first used for personal purposes cannot qualify for the deduction in a later year when its use changes to business. Filing tax return 2012 Example. Filing tax return 2012 In 2012, you bought a new car and used it for personal purposes. Filing tax return 2012 In 2013, you began to use it for business. Filing tax return 2012 Changing its use to business use does not qualify the cost of your car for a section 179 deduction in 2013. Filing tax return 2012 However, you can claim a depreciation deduction for the business use of the car starting in 2013. Filing tax return 2012 See Depreciation Deduction , later. Filing tax return 2012 More than 50% business use requirement. Filing tax return 2012   You must use the property more than 50% for business to claim any section 179 deduction. Filing tax return 2012 If you used the property more than 50% for business, multiply the cost of the property by the percentage of business use. Filing tax return 2012 The result is the cost of the property that can qualify for the section 179 deduction. Filing tax return 2012 Example. Filing tax return 2012 Peter purchased a car in April 2013 for $24,500 and used it 60% for business. Filing tax return 2012 Based on his business usage, the total cost of Peter's car that qualifies for the section 179 deduction is $14,700 ($24,500 cost × 60% business use). Filing tax return 2012 But see Limit on total section 179, special depreciation allowance, and depreciation deduction , discussed later. Filing tax return 2012 Limits. Filing tax return 2012   There are limits on: The amount of the section 179 deduction, The section 179 deduction for sport utility and certain other vehicles, and The total amount of the section 179 deduction, special depreciation allowance, and depreciation deduction (discussed later ) you can claim for a qualified property. Filing tax return 2012 Limit on the amount of the section 179 deduction. Filing tax return 2012   For 2013, the total amount you can choose to deduct under section 179 generally cannot be more than $500,000. Filing tax return 2012   If the cost of your section 179 property placed in service in 2013 is over $2,000,000, you must reduce the $500,000 dollar limit (but not below zero) by the amount of cost over $2,000,000. Filing tax return 2012 If the cost of your section 179 property placed in service during 2013 is $2,500,000 or more, you cannot take a section 179 deduction. Filing tax return 2012   The total amount you can deduct under section 179 each year after you apply the limits listed above cannot be more than the taxable income from the active conduct of any trade or business during the year. Filing tax return 2012   If you are married and file a joint return, you and your spouse are treated as one taxpayer in determining any reduction to the dollar limit, regardless of which of you purchased the property or placed it in service. Filing tax return 2012   If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit. Filing tax return 2012 You must allocate the dollar limit (after any reduction) between you. Filing tax return 2012   For more information on the above section 179 deduction limits, see Publication 946. Filing tax return 2012 Limit for sport utility and certain other vehicles. Filing tax return 2012   For sport utility and certain other vehicles placed in service in 2013, the portion of the vehicle's cost taken into account in figuring your section 179 deduction is limited to $25,000. Filing tax return 2012 This rule applies to any four-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways, that is not subject to any of the passenger automobile limits explained under Depreciation Limits , later, and that is rated at no more than 14,000 pounds gross vehicle weight. Filing tax return 2012 However, the $25,000 limit does not apply to any vehicle: Designed to have a seating capacity of more than nine persons behind the driver's seat, Equipped with a cargo area of at least 6 feet in interior length that is an open area or is designed for use as an open area but is enclosed by a cap and is not readily accessible directly from the passenger compartment, or That has an integral enclosure, fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver's seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield. Filing tax return 2012    Limit on total section 179, special depreciation allowance, and depreciation deduction. Filing tax return 2012   Generally, the total amount of section 179, special depreciation allowance, and depreciation deduction you can claim for a car that is qualified property and that you placed in service in 2013 is $11,160. Filing tax return 2012 The limit is reduced if your business use of the car is less than 100%. Filing tax return 2012 See Depreciation Limits , later, for more information. Filing tax return 2012 Example. Filing tax return 2012 In the earlier example under More than 50% business use requirement, Peter had a car with a cost (for purposes of the section 179 deduction) of $14,700. Filing tax return 2012 However, based on Peter's business usage of his car, the total of his section 179, special depreciation allowance, and depreciation deductions is limited to $6,696 ($11,160 limit x 60% business use). Filing tax return 2012 Cost of car. Filing tax return 2012   For purposes of the section 179 deduction, the cost of the car does not include any amount figured by reference to any other property held by you at any time. Filing tax return 2012 For example, if you buy (for cash and a trade-in) a new car to use in your business, your cost for purposes of the section 179 deduction does not include your adjusted basis in the car you trade in for the new car. Filing tax return 2012 Your cost includes only the cash you paid. Filing tax return 2012 Basis of car for depreciation. Filing tax return 2012   The amount of the section 179 deduction reduces your basis in your car. Filing tax return 2012 If you choose the section 179 deduction, you must subtract the amount of the deduction from the cost of your car. Filing tax return 2012 The resulting amount is the basis in your car you use to figure your depreciation deduction. Filing tax return 2012 When to choose. Filing tax return 2012   If you want to take the section 179 deduction, you must make the choice in the tax year you place the car in service for business or work. Filing tax return 2012 How to choose. Filing tax return 2012    Employees use Form 2106 to make this choice and report the section 179 deduction. Filing tax return 2012 All others use Form 4562. Filing tax return 2012   File the appropriate form with either of the following. Filing tax return 2012 Your original tax return filed for the year the property was placed in service (whether or not you file it timely). Filing tax return 2012 An amended return filed within the time prescribed by law. Filing tax return 2012 An election made on an amended return must specify the item of section 179 property to which the election applies and the part of the cost of each such item to be taken into account. Filing tax return 2012 The amended return must also include any resulting adjustments to taxable income. Filing tax return 2012    You must keep records that show the specific identification of each piece of qualifying section 179 property. Filing tax return 2012 These records must show how you acquired the property, the person you acquired it from, and when you placed it in service. Filing tax return 2012 Revoking an election. Filing tax return 2012   An election (or any specification made in the election) to take a section 179 deduction for 2013 can only be revoked with the Commissioner's approval. Filing tax return 2012 Recapture of section 179 deduction. Filing tax return 2012   To be eligible to claim the section 179 deduction, you must use your car more than 50% for business or work in the year you acquired it. Filing tax return 2012 If your business use of the car is 50% or less in a later tax year during the recovery period, you have to recapture (include in income) in that later year any excess depreciation. Filing tax return 2012 Any section 179 deduction claimed on the car is included in calculating the excess depreciation. Filing tax return 2012 For information on this calculation, see Excess depreciation , later in this chapter under Car Used 50% or Less for Business. Filing tax return 2012 Dispositions. Filing tax return 2012   If you dispose of a car on which you had claimed the section 179 deduction, the amount of that deduction is treated as a depreciation deduction for recapture purposes. Filing tax return 2012 You treat any gain on the disposition of the property as ordinary income up to the amount of the section 179 deduction and any allowable depreciation (unless you establish the amount actually allowed). Filing tax return 2012 For information on the disposition of a car, see Disposition of a Car , later. Filing tax return 2012 Special Depreciation Allowance You may be able to claim the special depreciation allowance for your car, truck, or van, if it is qualified property and was placed in service in 2013. Filing tax return 2012 The allowance is an additional depreciation deduction of 50% of the car's depreciable basis (after any section 179 deduction, but before figuring your regular depreciation deduction under MACRS). Filing tax return 2012 The special depreciation allowance applies only for the first year the car is placed in service. Filing tax return 2012 To qualify for the allowance more than 50% of the use of the car must be in a qualified business use (as defined under Depreciation Deduction, later). Filing tax return 2012 Combined depreciation. Filing tax return 2012   Your combined section 179 deduction, special depreciation allowance, and regular MACRS depreciation deduction is limited to the maximum allowable depreciation deduction for cars of $11,160 ($3,160 if you elect not to claim the special depreciation allowance). Filing tax return 2012 For trucks and vans, the first-year limit remains at $11,360 ($3,360 if you elect not to claim the special depreciation allowance). Filing tax return 2012 See Depreciation Limits , later in this chapter. Filing tax return 2012 Qualified car. Filing tax return 2012   To be a qualified car (including trucks and vans), the car must meet all of the following tests. Filing tax return 2012 You purchased the car new on or after January 1, 2008, but only if no binding written contract to acquire the car existed before January 1, 2008, You placed the car in service in your trade or business before January 1, 2014, You used the car more than 50% in a qualified business use. Filing tax return 2012 Election not to claim the special depreciation allowance. Filing tax return 2012   You can elect not to claim the special depreciation allowance for your car, truck, or van, that is qualified property. Filing tax return 2012 If you make this election, it applies to all 5-year property placed in service during the year. Filing tax return 2012   To make the election, attach a statement to your timely filed return (including extensions) indicating the class of property (5-year for cars) for which you are making the election and that you are electing not to claim the special depreciation allowance for qualified property acquired on or after January 1, 2008. Filing tax return 2012    Unless you elect not to claim the special depreciation allowance, you must reduce the car's adjusted basis by the amount of the allowance, even if the allowance was not claimed. Filing tax return 2012 Depreciation Deduction If you use actual car expenses to figure your deduction for a car you own and use in your business, you can claim a depreciation deduction. Filing tax return 2012 This means you can deduct a certain amount each year as a recovery of your cost or other basis in your car. Filing tax return 2012 You generally need to know the following things about the car you intend to depreciate. Filing tax return 2012 Your basis in the car. Filing tax return 2012 The date you place the car in service. Filing tax return 2012 The method of depreciation and recovery period you will use. Filing tax return 2012 Basis. Filing tax return 2012   Your basis in a car for figuring depreciation is generally its cost. Filing tax return 2012 This includes any amount you borrow or pay in cash, other property, or services. Filing tax return 2012   Generally, you figure depreciation on your car, truck, or van using your unadjusted basis (see Unadjusted basis , later). Filing tax return 2012 However, in some situations you will use your adjusted basis (your basis reduced by depreciation allowed or allowable in earlier years). Filing tax return 2012 For one of these situations see Exception under Methods of depreciation, later. Filing tax return 2012   If you change the use of a car from personal to business, your basis for depreciation is the lesser of the fair market value or your adjusted basis in the car on the date of conversion. Filing tax return 2012 Additional rules concerning basis are discussed later in this chapter under Unadjusted basis . Filing tax return 2012 Placed in service. Filing tax return 2012   You generally place a car in service when it is available for use in your work or business, in an income-producing activity, or in a personal activity. Filing tax return 2012 Depreciation begins when the car is placed in service for use in your work or business or for the production of income. Filing tax return 2012   For purposes of computing depreciation, if you first start using the car only for personal use and later convert it to business use, you place the car in service on the date of conversion. Filing tax return 2012 Car placed in service and disposed of in the same year. Filing tax return 2012   If you place a car in service and dispose of it in the same tax year, you cannot claim any depreciation deduction for that car. Filing tax return 2012 Methods of depreciation. Filing tax return 2012   Generally, you figure depreciation on cars using the Modified Accelerated Cost Recovery System (MACRS). Filing tax return 2012 MACRS is discussed later in this chapter. Filing tax return 2012 Exception. Filing tax return 2012   If you used the standard mileage rate in the first year of business use and change to the actual expenses method in a later year, you cannot depreciate your car under the MACRS rules. Filing tax return 2012 You must use straight line depreciation over the estimated remaining useful life of the car. Filing tax return 2012   To figure depreciation under the straight line method, you must reduce your basis in the car (but not below zero) by a set rate per mile for all miles for which you used the standard mileage rate. Filing tax return 2012 The rate per mile varies depending on the year(s) you used the standard mileage rate. Filing tax return 2012 For the rate(s) to use, see Depreciation adjustment when you used the standard mileage rate under Disposition of a Car, later. Filing tax return 2012   This reduction of basis is in addition to those basis adjustments described later under Unadjusted basis . Filing tax return 2012 You must use your adjusted basis in your car to figure your depreciation deduction. Filing tax return 2012 For additional information on the straight line method of depreciation, see Publication 946. Filing tax return 2012 More-than-50%-use test. Filing tax return 2012   Generally, you must use your car more than 50% for qualified business use (defined next) during the year to use MACRS. Filing tax return 2012 You must meet this more-than-50%-use test each year of the recovery period (6 years under MACRS) for your car. Filing tax return 2012   If your business use is 50% or less, you must use the straight line method to depreciate your car. Filing tax return 2012 This is explained later under Car Used 50% or Less for Business . Filing tax return 2012 Qualified business use. Filing tax return 2012   A qualified business use is any use in your trade or business. Filing tax return 2012 It does not include use for the production of income (investment use). Filing tax return 2012 However, you do combine your business and investment use to compute your depreciation deduction for the tax year. Filing tax return 2012 Use of your car by another person. Filing tax return 2012   Do not treat any use of your car by another person as use in your trade or business unless that use meets one of the following conditions. Filing tax return 2012 It is directly connected with your business. Filing tax return 2012 It is properly reported by you as income to the other person (and, if you have to, you withhold tax on the income). Filing tax return 2012 It results in a payment of fair market rent. Filing tax return 2012 This includes any payment to you for the use of your car. Filing tax return 2012 Business use changes. Filing tax return 2012   If you used your car more than 50% in qualified business use in the year you placed it in service, but 50% or less in a later year (including the year of disposition), you have to change to the straight line method of depreciation. Filing tax return 2012 See Qualified business use 50% or less in a later year under Car Used 50% or Less for Business, later. Filing tax return 2012    Property does not cease to be used more than 50% in qualified business use by reason of a transfer at death. Filing tax return 2012 Use for more than one purpose. Filing tax return 2012   If you use your car for more than one purpose during the tax year, you must allocate the use to the various purposes. Filing tax return 2012 You do this on the basis of mileage. Filing tax return 2012 Figure the percentage of qualified business use by dividing the number of miles you drive your car for business purposes during the year by the total number of miles you drive the car during the year for any purpose. Filing tax return 2012 Change from personal to business use. Filing tax return 2012   If you change the use of a car from 100% personal use to business use during the tax year, you may not have mileage records for the time before the change to business use. Filing tax return 2012 In this case, you figure the percentage of business use for the year as follows. Filing tax return 2012 Determine the percentage of business use for the period following the change. Filing tax return 2012 Do this by dividing business miles by total miles driven during that period. Filing tax return 2012 Multiply the percentage in (1) by a fraction. Filing tax return 2012 The numerator (top number) is the number of months the car is used for business and the denominator (bottom number) is 12. Filing tax return 2012 Example. Filing tax return 2012 You use a car only for personal purposes during the first 6 months of the year. Filing tax return 2012 During the last 6 months of the year, you drive the car a total of 15,000 miles of which 12,000 miles are for business. Filing tax return 2012 This gives you a business use percentage of 80% (12,000 ÷ 15,000) for that period. Filing tax return 2012 Your business use for the year is 40% (80% × 6/12). Filing tax return 2012 Limits. Filing tax return 2012   The amount you can claim for section 179, special depreciation allowance, and depreciation deductions may be limited. Filing tax return 2012 The maximum amount you can claim depends on the year in which you placed your car in service. Filing tax return 2012 You have to reduce the maximum amount if you did not use the car exclusively for business. Filing tax return 2012 See Depreciation Limits , later. Filing tax return 2012 Unadjusted basis. Filing tax return 2012   You use your unadjusted basis (often referred to as your basis or your basis for depreciation) to figure your depreciation using the MACRS depreciation chart, explained later under Modified Accelerated Cost Recovery System (MACRS) . Filing tax return 2012 Your unadjusted basis for figuring depreciation is your original basis increased or decreased by certain amounts. Filing tax return 2012   To figure your unadjusted basis, begin with your car's original basis, which generally is its cost. Filing tax return 2012 Cost includes sales taxes (see Sales taxes , earlier), destination charges, and dealer preparation. Filing tax return 2012 Increase your basis by any substantial improvements you make to your car, such as adding air conditioning or a new engine. Filing tax return 2012 Decrease your basis by any section 179 deduction, special depreciation allowance, gas guzzler tax, clean-fuel vehicle deduction (for vehicles placed in service before Jan. Filing tax return 2012 1, 2006), and alternative motor vehicle credit. Filing tax return 2012   See Form 8910 for information on the alternative motor vehicle credit. Filing tax return 2012 If your business use later falls to 50% or less, you may have to recapture (include in your income) any excess depreciation. Filing tax return 2012 See Car Used 50% or Less for Business, later, for more information. Filing tax return 2012 If you acquired the car by gift or inheritance, see Publication 551, Basis of Assets, for information on your basis in the car. Filing tax return 2012 Improvements. Filing tax return 2012   A major improvement to a car is treated as a new item of 5-year recovery property. Filing tax return 2012 It is treated as placed in service in the year the improvement is made. Filing tax return 2012 It does not matter how old the car is when the improvement is added. Filing tax return 2012 Follow the same steps for depreciating the improvement as you would for depreciating the original cost of the car. Filing tax return 2012 However, you must treat the improvement and the car as a whole when applying the limits on the depreciation deductions. Filing tax return 2012 Your car's depreciation deduction for the year (plus any section 179 deduction, special depreciation allowance, and depreciation on any improvements) cannot be more than the depreciation limit that applies for that year. Filing tax return 2012 See Depreciation Limits , later. Filing tax return 2012 Car trade-in. Filing tax return 2012   If you traded one car (the “old car”) for another car (the “new car”) in 2013, there are two ways you can treat the transaction. Filing tax return 2012 You can elect to treat the transaction as a tax-free disposition of the old car and the purchase of the new car. Filing tax return 2012 If you make this election, you treat the old car as disposed of at the time of the trade-in. Filing tax return 2012 The depreciable basis of the new car is the adjusted basis of the old car (figured as if 100% of the car's use had been for business purposes) plus any additional amount you paid for the new car. Filing tax return 2012 You then figure your depreciation deduction for the new car beginning with the date you placed it in service. Filing tax return 2012 You make this election by completing Form 2106, Part II, Section D. Filing tax return 2012 This method is explained later, beginning at Effect of trade-in on basis . Filing tax return 2012 If you do not make the election described in (1), you must figure depreciation separately for the remaining basis of the old car and for any additional amount you paid for the new car. Filing tax return 2012 You must apply two depreciation limits (see Depreciation Limits , later). Filing tax return 2012 The limit that applies to the remaining basis of the old car generally is the amount that would have been allowed had you not traded in the old car. Filing tax return 2012 The limit that applies to the additional amount you paid for the new car generally is the limit that applies for the tax year, reduced by the depreciation allowance for the remaining basis of the old car. Filing tax return 2012 You must use Form 4562 to compute your depreciation deduction. Filing tax return 2012 You cannot use Form 2106, Part II, Section D. Filing tax return 2012 This method is explained in Publication 946. Filing tax return 2012   If you elect to use the method described in (1), you must do so on a timely filed tax return (including extensions). Filing tax return 2012 Otherwise, you must use the method described in (2). Filing tax return 2012 Effect of trade-in on basis. Filing tax return 2012   The discussion that follows applies to trade-ins of cars in 2013, where the election was made to treat the transaction as a tax-free disposition of the old car and the purchase of the new car. Filing tax return 2012 For information on how to figure depreciation for cars involved in a like-kind exchange (trade-in) in 2013, for which the election was not made, see Publication 946 and Regulations section 1. Filing tax return 2012 168(i)-6(d)(3). Filing tax return 2012 Traded car used only for business. Filing tax return 2012   If you trade in a car you used only in your business for another car that will be used only in your business, your original basis in the new car is your adjusted basis in the old car, plus any additional amount you pay for the new car. Filing tax return 2012 Example. Filing tax return 2012 Paul trades in a car that has an adjusted basis of $5,000 for a new car. Filing tax return 2012 In addition, he pays cash of $20,000 for the new car. Filing tax return 2012 His original basis of the new car is $25,000 (his $5,000 adjusted basis in the old car plus the $20,000 cash paid). Filing tax return 2012 Paul's unadjusted basis is $25,000 unless he claims the section 179 deduction, special depreciation allowance, or has other increases or decreases to his original basis, discussed under Unadjusted basis , earlier. Filing tax return 2012 Traded car used partly in business. Filing tax return 2012   If you trade in a car you used partly in your business for a new car you will use in your business, you must make a “trade-in” adjustment for the personal use of the old car. Filing tax return 2012 This adjustment has the effect of reducing your basis in your old car, but not below zero, for purposes of figuring your depreciation deduction for the new car. Filing tax return 2012 (This adjustment is not used, however, when you determine the gain or loss on the later disposition of the new car. Filing tax return 2012 See Publication 544, Sales and Other Dispositions of Assets, for information on how to report the disposition of your car. Filing tax return 2012 )   To figure the unadjusted basis of your new car for depreciation, first add to your adjusted basis in the old car any additional amount you pay for the new car. Filing tax return 2012 Then subtract from that total the excess, if any, of: The total of the amounts that would have been allowable as depreciation during the tax years before the trade if 100% of the use of the car had been business and investment use, over The total of the amounts actually allowed as depreciation during those years. Filing tax return 2012 For information about figuring depreciation, see Modified Accelerated Cost Recovery System (MACRS) , which follows Example 2, later. Filing tax return 2012 Modified Accelerated Cost Recovery System (MACRS). Filing tax return 2012   The Modified Accelerated Cost Recovery System (MACRS) is the name given to the tax rules for getting back (recovering) through depreciation deductions the cost of property used in a trade or business or to produce income. Filing tax return 2012   The maximum amount you can deduct is limited, depending on the year you placed your car in service. Filing tax return 2012 See Depreciation Limits , later. Filing tax return 2012 Recovery period. Filing tax return 2012   Under MACRS, cars are classified as 5-year property. Filing tax return 2012 You actually depreciate the cost of a car, truck, or van over a period of 6 calendar years. Filing tax return 2012 This is because your car is generally treated as placed in service in the middle of the year, and you claim depreciation for one-half of both the first year and the sixth year. Filing tax return 2012 Depreciation deduction for certain Indian reservation property. Filing tax return 2012   Shorter recovery periods are provided under MACRS for qualified Indian reservation property placed in service on Indian reservations after 1993 and before 2014. Filing tax return 2012 The recovery that applies for a business-use car is 3 years instead of 5 years. Filing tax return 2012 However, the depreciation limits, discussed later, will still apply. Filing tax return 2012   For more information on the qualifications for this shorter recovery period and the percentages to use in figuring the depreciation deduction, see chapter 4 of Publication 946. Filing tax return 2012 Depreciation methods. Filing tax return 2012   You can use one of the following methods to depreciate your car. Filing tax return 2012 The 200% declining balance method (200% DB) over a 5-year recovery period that switches to the straight line method when that method provides an equal or greater deduction. Filing tax return 2012 The 150% declining balance method (150% DB) over a 5-year recovery period that switches to the straight line method when that method provides an equal or greater deduction. Filing tax return 2012 The straight line method (SL) over a 5-year recovery period. Filing tax return 2012    If you use Table 4-1 (discussed later under MACRS depreciation chart) to determine your depreciation rate for 2013, you do not need to determine in what year using the straight line method provides an equal or greater deduction. Filing tax return 2012 This is because the chart has the switch to the straight line method built into its rates. Filing tax return 2012   Before choosing a method, you may wish to consider the following facts. Filing tax return 2012 Using the straight line method provides equal yearly deductions throughout the recovery period. Filing tax return 2012 Using the declining balance methods provides greater deductions during the earlier recovery years with the deductions generally getting smaller each year. Filing tax return 2012 MACRS depreciation chart. Filing tax return 2012   A 2013 MACRS Depreciation Chart and instructions are included in this chapter as Table 4-1 . Filing tax return 2012 Using this table will make it easy for you to figure the 2013 depreciation deduction for your car. Filing tax return 2012 A similar chart appears in the Instructions for Form 2106. Filing tax return 2012    You may have to use the tables in Publication 946 instead of using this MACRS Depreciation Chart. Filing tax return 2012   You must use the Depreciation Tables in Publication 946 rather than the 2013 MACRS Depreciation Chart in this publication if any one of the following four conditions applies to you. Filing tax return 2012 You file your return on a fiscal year basis. Filing tax return 2012 You file your return for a short tax year (less than 12 months). Filing tax return 2012 During the year, all of the following conditions apply. Filing tax return 2012 You placed some property in service from January through September. Filing tax return 2012 You placed some property in service from October through December. Filing tax return 2012 Your basis in the property you placed in service from October through December (excluding nonresidential real property, residential rental property, and property placed in service and disposed of in the same year) was more than 40% of your total bases in all property you placed in service during the year. Filing tax return 2012   You placed qualified property in service on an Indian reservation. Filing tax return 2012 Depreciation in future years. Filing tax return 2012   If you use the percentages from the chart, you generally must continue to use them for the entire recovery period of your car. Filing tax return 2012 However, you cannot continue to use the chart if your basis in your car is adjusted because of a casualty. Filing tax return 2012 In that case, for the year of the adjustment and the remaining recovery period, figure the depreciation without the chart using your adjusted basis in the car at the end of the year of the adjustment and over the remaining recovery period. Filing tax return 2012 See Figuring the Deduction Without Using the Tables in chapter 4 of Publication 946. Filing tax return 2012    In future years, do not use the chart in this edition of the publication. Filing tax return 2012 Instead, use the chart in the publication or the form instructions for those future years. Filing tax return 2012 Disposition of car during recovery period. Filing tax return 2012   If you dispose of the car before the end of the recovery period, you are generally allowed a half year of depreciation in the year of disposition unless you purchased the car during the last quarter of a year. Filing tax return 2012 See Depreciation deduction for the year of disposition under Disposition of a Car, later, for information on how to figure the depreciation allowed in the year of disposition. Filing tax return 2012 How to use the 2013 chart. Filing tax return 2012   To figure your depreciation deduction for 2013, find the percentage in the column of Table 4-1 based on the date that you first placed the car in service and the depreciation method that you are using. Filing tax return 2012 Multiply the unadjusted basis of your car (defined earlier) by that percentage to determine the amount of your depreciation deduction. Filing tax return 2012 If you prefer to figure your depreciation deduction without the help of the chart, see Publication 946. Filing tax return 2012    Your deduction cannot be more than the maximum depreciation limit for cars. Filing tax return 2012 See Depreciation Limits, later. Filing tax return 2012 Example. Filing tax return 2012 Phil bought a used truck in February 2012 to use exclusively in his landscape business. Filing tax return 2012 He paid $9,200 for the truck with no trade-in. Filing tax return 2012 Phil did not claim any section 179 deduction, the truck did not qualify for the special depreciation allowance, and he chose to use the 200% DB method to get the largest depreciation deduction in the early years. Filing tax return 2012 Phil used the MACRS depreciation chart in 2012 to find his percentage. Filing tax return 2012 The unadjusted basis of his truck equals its cost because Phil used it exclusively for business. Filing tax return 2012 He multiplied the unadjusted basis of his truck, $9,200, by the percentage that applied, 20%, to figure his 2012 depreciation deduction of $1,840. Filing tax return 2012 In 2013, Phil used the truck for personal purposes when he repaired his father's cabin. Filing tax return 2012 His records show that the business use of his truck was 90% in 2013. Filing tax return 2012 Phil used Table 4-1 to find his percentage. Filing tax return 2012 Reading down the first column for the date placed in service and across to the 200% DB column, he locates his percentage, 32%. Filing tax return 2012 He multiplies the unadjusted basis of his truck, $8,280 ($9,200 cost × 90% business use), by 32% to figure his 2013 depreciation deduction of $2,650. Filing tax return 2012 Depreciation Limits There are limits on the amount you can deduct for depreciation of your car, truck, or van. Filing tax return 2012 The section 179 deduction and special depreciation allowance are treated as depreciation for purposes of the limits. Filing tax return 2012 The maximum amount you can deduct each year depends on the year you place the car in service. Filing tax return 2012 These limits are shown in the following tables. Filing tax return 2012   Maximum Depreciation Deduction for Cars Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2012–2013 $11,1601 $5,100 $3,050 $1,875 2010–2011 11,0602 4,900 2,950 1,775 2008–2009 10,9603 4,800 2,850 1,775 2007 3,060 4,900 2,850 1,775 2006 2,960 4,800 2,850 1,775 2005 2,960 4,700 2,850 1,675 2004 10,6103 4,800 2,850 1,675 5/06/2003– 12/31/2003 10,7104 4,900 2,950 1,775 1/01/2003– 5/05/2003 7,6605 4,900 2,950 1,775 2001–2002 7,6605 4,900 2,950 1,775 2000 3,060 4,900 2,950 1,775 1$3,160 if the car is not qualified property or if you elect not to claim the special depreciation allowance. Filing tax return 2012 2$3,060 if the car is not qualified property or if you elect not to claim the special depreciation allowance. Filing tax return 2012 3$2,960 if the car is not qualified property or if you elect not to claim the special depreciation allowance. Filing tax return 2012 4$7,660 if you acquired the car before 5/6/2003. Filing tax return 2012 $3,060 if the car is not qualified property or if you elect not to claim any special depreciation allowance. Filing tax return 2012 5$3,060 if you acquired the car before 9/11/2001, the car is not qualified property, or you elect not to claim the special depreciation allowance. Filing tax return 2012 Trucks and vans. Filing tax return 2012   For 2013, the maximum depreciation deductions for trucks and vans are generally higher than those for cars. Filing tax return 2012 A truck or van is a passenger automobile that is classified by the manufacturer as a truck or van and rated at 6,000 pounds gross vehicle weight or less. Filing tax return 2012 For trucks and vans placed in service before 2003, use the Maximum Depreciation Deduction for Cars table. Filing tax return 2012 Maximum Depreciation Deduction for Trucks and Vans Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2013 $11,3601 $5,400 $3,250 $1,975 2012 $11,3601 $5,300 $3,150 $1,875 2011 11,2601 5,200 3,150 1,875 2010 11,1601 5,100 3,050 1,875 2009 11,0601 4,900 2,950 1,775 2008 11,1601 5,100 3,050 1,875 2007 3,260 5,200 3,050 1,875 2005–2006 3,260 5,200 3,150 1,875 2004 10,9101 5,300 3,150 1,875 2003 11,0101,2 5,400 3,250 1,975 1If the special depreciation allowance does not apply or you make the election not to claim the special depreciation allowance, the first-year limit is $3,360 for 2012 and 2013, $3,260 for 2011, $3,160 for 2010, $3,060 for 2009, $3,160 for 2008, $3,260 for 2004, and $3,360 for 2003. Filing tax return 2012 2If the truck or van was acquired before 5/06/2003, the truck or van is qualified property, and you claim the special depreciation allowance for the truck or van, the maximum deduction is $7,960. Filing tax return 2012 Car used less than full year. Filing tax return 2012   The depreciation limits are not reduced if you use a car for less than a full year. Filing tax return 2012 This means that you do not reduce the limit when you either place a car in service or dispose of a car during the year. Filing tax return 2012 However, the depreciation limits are reduced if you do not use the car exclusively for business and investment purposes. Filing tax return 2012 See Reduction for personal use , next. Filing tax return 2012 Reduction for personal use. Filing tax return 2012   The depreciation limits are reduced based on your percentage of personal use. Filing tax return 2012 If you use a car less than 100% in your business or work, you must determine the depreciation deduction limit by multiplying the limit amount by the percentage of business and investment use during the tax year. Filing tax return 2012 Section 179 deduction. Filing tax return 2012   The section 179 deduction is treated as a depreciation deduction. Filing tax return 2012 If you place a car that is not a truck or van in service in 2013, use it only for business, and choose the section 179 deduction, the special depreciation allowance, and the depreciation deduction for that car for 2013 is limited to $11,160. Filing tax return 2012 Example. Filing tax return 2012 On September 4, 2013, Jack bought a used car for $10,000 and placed it in service. Filing tax return 2012 He used it 80% for his business, and he chooses to take a section 179 deduction for the car. Filing tax return 2012 The car is not qualified property for purposes of the special depreciation allowance. Filing tax return 2012 Before applying the limit, Jack figures his maximum section 179 deduction to be $8,000. Filing tax return 2012 This is the cost of his qualifying property (up to the maximum $500,000 amount) multiplied by his business use ($10,000 × 80%). Filing tax return 2012 Jack then figures that his section 179 deduction for 2013 is limited to $2,528 (80% of $3,160). Filing tax return 2012 He then figures his unadjusted basis of $5,472 (($10,000 × 80%) − $2,528) for determining his depreciation deduction. Filing tax return 2012 Jack has reached his maximum depreciation deduction for 2013. Filing tax return 2012 For 2014, Jack will use his unadjusted basis of $5,472 to figure his depreciation deduction. Filing tax return 2012 Deductions in years after the recovery period. Filing tax return 2012   If the depreciation deductions for your car are reduced under the passenger automobile limits (discussed earlier), you will have unrecovered basis in your car at the end of the recovery period. Filing tax return 2012 If you continue to use your car for business, you can deduct that unrecovered basis (subject to depreciation limits) after the recovery period ends. Filing tax return 2012 Unrecovered basis. Filing tax return 2012   This is your cost or other basis in the car reduced by any clean-fuel vehicle deduction (for vehicles placed in service before January 1, 2006), alternative motor vehicle credit, electric vehicle credit, gas guzzler tax, and depreciation (including any special depreciation allowance , discussed earlier, unless you elect not to claim it) and section 179 deductions that would have been allowable if you had used the car 100% for business and investment use. Filing tax return 2012 The recovery period. Filing tax return 2012   For 5-year property, your recovery period is 6 calendar years. Filing tax return 2012 A part year's depreciation is allowed in the first calendar year, a full year's depreciation is allowed in each of the next 4 calendar years, and a part year's depreciation is allowed in the 6th calendar year. Filing tax return 2012   Under MACRS, your recovery period is the same whether you use declining balance or straight line depreciation. Filing tax return 2012 You determine your unrecovered basis in the 7th year after you placed the car in service. Filing tax return 2012 How to treat unrecovered basis. Filing tax return 2012   If you continue to use your car for business after the recovery period, you can claim a depreciation deduction in each succeeding tax year until you recover your basis in the car. Filing tax return 2012 The maximum amount you can deduct each year is determined by the date you placed the car in service and your business-use percentage. Filing tax return 2012 For example, no deduction is allowed for a year you use your car 100% for personal purposes. Filing tax return 2012 Example. Filing tax return 2012 In April 2007, Bob bought and placed in service a car he used exclusively in his business. Filing tax return 2012 The car cost $31,500. Filing tax return 2012 Bob did not claim a section 179 deduction or the special depreciation allowance for the car. Filing tax return 2012 He continued to use the car 100% in his business throughout the recovery period (2007 through 2012). Filing tax return 2012 For those years, Bob used the MACRS Depreciation Chart (200% declining balance method) and the Maximum Depreciation Deduction for Cars table, earlier, for the applicable tax year to compute his depreciation deductions during the recovery period. Filing tax return 2012 Bob's depreciation deductions were subject to the depreciation limits so he will have unrecovered basis at the end of the recovery period as shown in the following table. Filing tax return 2012      MACRS     Deprec. Filing tax return 2012 Year % Amount Limit Allowed 2007 20. Filing tax return 2012 00 $6,300 $3,060 $ 3,060 2008 32. Filing tax return 2012 00 10,080 4,900 4,900 2009 19. Filing tax return 2012 20 6,048 2,850 2,850 2010 11. Filing tax return 2012 52 3,629 1,775 1,775 2011 11. Filing tax return 2012 52 3,629 1,775 1,775 2012 5. Filing tax return 2012 76 1,814 1,775 1,775 Total $31,500   16,135 For the correct limit, see Maximum Depreciation Deduction for Cars under “Depreciation Limits,” earlier, for the maximum amount of depreciation allowed each year. Filing tax return 2012   At the end of 2012, Bob had an unrecovered basis in the car of $15,365 ($31,500 – $16,135). Filing tax return 2012 If Bob continued to use the car 100% for business in 2013 and later years, he can claim a depreciation deduction equal to the lesser of $1,775 or his remaining unrecovered basis. Filing tax return 2012   If Bob's business use of the car was less than 100% during any year, his depreciation deduction would be less than the maximum amount allowable for that year. Filing tax return 2012 However, in determining his unrecovered basis in the car, he would still reduce his original basis by the maximum amount allowable as if the business use had been 100%. Filing tax return 2012 For example, if Bob had used his car 60% for business instead of 100%, his allowable depreciation deductions would have been $9,681 ($16,135 × 60%), but he still would have to reduce his basis by $16,135 to determine his unrecovered basis. Filing tax return 2012 Table 4-1. Filing tax return 2012 2013 MACRS Depreciation Chart (Use to Figure Depreciation for 2013. Filing tax return 2012 ) If you claim actual expenses for your car, use the chart below to find the depreciation method and percentage to use for your 2013 return for cars placed in service in 2013. Filing tax return 2012   First, using the left column, find the date you first placed the car in service in 2013. Filing tax return 2012 Then select the depreciation method and percentage from column (a), (b), or (c) following the rules explained in this chapter. Filing tax return 2012 For cars placed in service before 2013, you must use the same method you used on last year's return unless a decline in your business use requires you to change to the straight line method. Filing tax return 2012 Refer back to the MACRS Depreciation Chart for the year you placed the car in service. Filing tax return 2012 (See Car Used 50% or Less for Business . Filing tax return 2012 )  Multiply the unadjusted basis of your car by your business use percentage. Filing tax return 2012 Multiply the result by the percentage you found in the chart to find the amount of your depreciation deduction for 2013. Filing tax return 2012 (Also see Depreciation Limits . Filing tax return 2012 )   If you placed your car in service after September of any year and you placed other business property in service during the same year, you may have to use the Jan. Filing tax return 2012 1—Sept. Filing tax return 2012 30 percentage instead of the Oct. Filing tax return 2012 1—Dec. Filing tax return 2012 31 percentage for your car. Filing tax return 2012               To find out if this applies to you, determine: 1) the basis of all business property you placed in service after September of that year and 2) the basis of all business property you placed in service during that entire year. Filing tax return 2012 If the basis of the property placed in service after September is not more than 40% of the basis of all property (certain property is excluded) placed in service for the entire year, use the percentage for Jan. Filing tax return 2012 1—Sept. Filing tax return 2012 30 for figuring depreciation for your car. Filing tax return 2012 See Which Convention Applies? in chapter 4 of Publication 946 for more details. Filing tax return 2012               Example. Filing tax return 2012 You buy machinery (basis of $32,000) in May 2013 and a new van (basis of $20,000) in October 2013, both used 100% in your business. Filing tax return 2012 You